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NO03 - Why Trade Forex: Advantages Of Forex Trading

"Congratulations! You have completed the first two elementary courses of what the currency markets is all about. By now you have a fair understanding of what the forex markets are all about and most importantly, you know what instruments are traded in forex. But you know that there are other types of markets that you can trade too. So, which is better? Every type of financial markets has its own pros and cons. In this section, you will learn what are the advantages of trading forex and the benefits about this market that makes it unique to other types of markets. People often get confused between whether to trade forex or stick to stocks trading. Curious to know why people prefer to trade forex? Read this article to find out more about the advantages that forex markets have over other kinds of markets. By the end of this article, you will be able to understand whether forex trading is something that you should consider."

So far, we learned what is forex markets and what are the instruments or assets that are traded in the forex markets. Now it is time to show you the advantages or the benefits of trading forex or currencies.

But before we begin, a question to ask is why trade the financial markets at all?

People trade the financial markets in order to make their money grow. This is done by either investing or speculating. These are two very different terms, although you might find that they are interchangeably used.

Investing is when you believe that the price of an asset will appreciate over time. Thus, you would invest in a security in hopes that it will give you a return on your investment over a period of time.

Speculation on the other hand is about making short term bets in the markets. There is more potential to make money here (and equally the same potential to lose money as well). When you speculate, you are known as an intraday trader or a day trader.

You can speculate in just about any markets, but restrictions and rules apply.

When one talks about the financial markets, it is often the stock markets that come to mind. But you can also trade (speculate) or invest in the forex markets too.

In this article, we outline the main advantages of trading forex.

1. The forex markets operate 24 hours a day

Because trading forex is all about trading global currencies, it is but expected that the markets operate 24 hours a day. This is one of the unique advantages of trading the forex markets.

Regardless of which geographical location you are in, you can always trade the forex markets, any time of the day, 5 days a week. (Yes, even the currency markets need a break over the weekends).

The ability to trade anytime makes forex trading a lot more appealing and thus enables a larger group to participate in the forex markets.

2. You can trade forex with small capital

There are no capital requirements when it comes to trading forex. You will often find that when you are trading stocks or futures, there is a minimum capital requirement. This is the minimum amount that you can invest.

But just to clarify, when we talk about no capital requirements, it means that the capital requirements are very small compared to other markets.

You can trade forex with just $100. This is something that is not possible in any other market. If you are asking the question about how it is possible to trade the forex markets with such a small amount, move on to the next point.

3. Forex trading is highly leveraged

Leverage is a term that you will come across in the forex markets many times. Leverage, as the name suggests deals with leveraging your capital and increasing in its value. With leverage, you can control or trade larger volumes with the same capital.

If you want to avoid leverage, of course, you will need to be capitalized by at least a $100,000 if not more.

Leverage is required in forex because the fluctuations you see are small in nature. Typically, price can move a point up to the fourth decimal. Ex: from 1.0001 to 1.0002. Without leverage, the only profit you make is 0.0001.

But with leverage, you can convert this small change into $1 or as much as $10, depending on how highly leveraged you are. High leverage is not that often used in other markets.

4. You can buy and sell in the forex markets with ease

When you expect the value of one currency to rise in relation to the other, you would obviously buy that currency. Likewise, when you expect the value of one currency to fall in relation to the other currency, you would prefer to sell.

While buying is common in any market, selling is restricted in most markets. Of course, the exception is the forex markets. You can sell an asset that you currently own, but you cannot short sell.

Short selling is when you borrow the security from your broker and sell it and then when you close this sell order, you buy the currency at a lower value and return it to your broker.

Short selling is highly restricted in the stock markets. But with forex markets, you can short sell with ease. Therefore, you can make money when the forex markets are rising as well as when they are falling.

Advantages of trading forex – Conclusion

The above points are one of the most important things that you will come across when trading forex. Besides the above, trading forex is less expensive as the transaction fees are smaller compared to other markets.

You can clearly see that the benefits of forex trading outweigh that of any other markets.

Read 905 times Last modified on Saturday, 21 March 2020 11:20