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Forex: Benefits of Trading the Forex Market
from: Raul LopezTrading the Forex market has become very popular in the last
years. Why is it that traders around the world see the Forex
market as an investment opportunity? We will try to answer this
question in this article. Also we will discuss come differences
between the Forex market, the stocks market and the futures
market.
Some of the benefits of trading the Forex market are:
Superior liquidity.
Liquidity is what really makes the Forex market different from
other markets. The Forex market is by far the most liquid
financial market in the world with nearly 2 trillion dollars
traded everyday. This ensures price stability and better trade
execution. Allowing traders to open and close transactions with
ease. Also such a tremendous volume makes it hard to manipulate
the market in an extended manner.
24hr Market.
This one is also one of the greatest advantages of trading
Forex. It is an around the click market, the market opens on
Sunday at 3:00 pm EST when New Zealand begins operations, and
closes on Friday at 5:00 pm EST when San Francisco terminates
operations. There are transactions in practically every time
zone, allowing active traders to choose at what time to trade.
Leverage trading.
Trading the Forex Market offers a greater buying power than many
other markets. Some Forex brokers offer leverage up to 400:1,
allowing traders to have only 0.25% in margin of the total
investment. For instance, a trader using 100:1 means that to
have a US$100,000 position, only US$1,000 are needed on margin
to be able to open that position.
Low Transaction costs.
Almost all brokers offer commission free trading. The only cost
traders incur in any transaction is the spread (difference
between the buy and sell price of each currency pair). This
spread could be as low as 1 pip (the minimum increment in any
currency pair) in some pairs.
Low minimum investment.
The Forex market requires less capital to start trading than any
other markets. The initial investment could go as low as $300
USD, depending on leverage offered by the broker. This is a
great advantage since Forex traders are able to keep their risk
investment to the lowest level.
Specialized trading.
The liquidity of the market allows us to focus on just a few
instruments (or currency pairs) as our main investments (85% of
all trading transactions are made on the seven major
currencies). Allowing us to monitor, and at the end get to know
each instrument better.
Trading from anywhere.
If you do a lot of traveling, you can trade from anywhere in the
world just having an internet connection.
Some of the most important differences between the Forex market
and other markets are explained below.
Forex market vs. Equity markets
Liquidity
FX market: Near two trillion dollars of daily volume. Equity
market: Around 200 billion on a daily basis.
Trading hours
FX market: 24hr market, 5.5 days a week. Equity market: Monday
through Friday from 8:30 EST to 5:00 EST.
Profit potential
FX market: In both, rising and falling markets. Equity market:
Most traders/investor profit only from rising markets.
Transaction costs
FX market: Commission free and tight spreads. Equity market:
High Commissions and transaction fees.
Buying power
FX market: Leverage up to 400:1. Equity market: Leverage from
2:1 to 4:1.
Specialization
FX market: most volume (85%) is made on major currencies (USD,
EUR, JPY, GBP, CHF, CAD and AUD.) Equity market: More than
40,000 stocks to choose from.
Forex market vs. Futures market
Liquidity
FX Market: Near two trillion dollars of daily volume. Futures
market: Around 400 billion dollars on a daily basis.
Transaction costs
FX market: Commission free and tight spreads. Futures market:
High commissions fees.
Margin
FX market: Fixed rate of margin on every position. Futures
market: Different levels of margin on overnight positions than
day time positions.
Trade execution
FX market: Instantaneous execution. Futures market: Inconsistent
execution.
All this makes the Forex market very attractive to investors
and traders. But I need to make something clear, although the
benefits of trading the Forex market are notorious; it is still
difficult to make a successful career trading the Forex market.
It requires a lot of education, discipline, commitment and
patience, as any other market.
About the author:
Raul Lopez is a full time Forex trader and founder of
http://www.straightforex.com a high quality
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