The Benefits of Forex Trading

Why The Market Has Remained Popular

There are five things give trading the forex market some unique advantages.

1
24 Hour Market

24 Hrs Open Sign Of Restaurant
The FX Market Trades 24/5. Chris Hoar / EyeEm

Since the forex market is worldwide, trading is continuous as long as there is a market open somewhere in the world. Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday. More

2
High Liquidity

Men queuing with large cups to catch water from dripping tap
FX Provides High Levels of Liquidity Compared to Other Speculative Markets. Gary Waters

Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In forex this means we can move large amounts of money into and out of foreign currency with minimal price movement.

3
Low Transaction Cost

Woman with 'sale' tag around her finger
Compared to Other Markets, FX Can Feel Cheap. Tooga
In forex, typically the cost for a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.

4
Leverage

Businessman pole vaulting over red line graph
FX Provides The Ability To Control A Much Larger Position Than Your Account Balance. Gary Waters
Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account. If you were to trade at 50:1 leverage, you could trade $50 on the market for every $1 that was in your account. This means you could control a trade of $50,000 using only $1000 of capital. More

5
Profit Potential from Rising and Falling Prices

An investor watchs the electric board in a stock market in Huaibei, Anhui province, east China on 14th March 2016.T
Traders in FX Do Not Have To Only Want Upside Like We Often See In Stock Trading. Jie Zhao / Contributor

The forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.

The Benefits Should Also Been Seen In Light Of The Risks

The benefits of trading the foreign exchange market such as a 24-hour market, high liquidity, low transaction costs, leverage, and the potential to profit from rising and falling prices are significant and keep new traders coming into the market every month. However, traders should balance those benefits with some of the risks involved as well. A 24-hour market can mean that a short move can happen against you when you are not watching the screen like the flash crash in October 2016 of the British pound that occurred during Asian trading hours most Westerners were not watching the market. High liquidity in most markets is available when you least need it and when you most need it, liquidity can be scarce regardless the market. The scarcity of liquidity is because those are trying to fill the trade are also uncertain about what was prices and will typically error on the side of giving you a worse price and scary moments of the Swiss National Bank peg removal. While transaction costs are low when trading foreign-exchange market, you should still be mindful that more trading is not always better. Traders may still benefit from a longer-term less active strategy that would allow them the largest benefit from the low-cost nature of trading FX. The leverage allowed is a double-edged sword which comes with as many risks if not more than the benefits brought on by having leverage. Leverage feels great when a trait is working in your favor, but if you do not have the plan to get out of a losing trade in leverage will often make things worse. Lastly, profit potential from rising and falling prices is an extreme benefit because the hindrance of short selling that we see in other markets like futures, options, and stocks are not seen in the Forex market. Such ease and selling a market short can make it much easier for a trader to become path dependent and not hope that the market will eventually move back in their favor. Happy Trading!

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