Why should you trade forex? Many of the advantages of trading forex arise from the unique features of this market. Let’s look at them now.
BIG, 24/5 MARKET
No! You don’t convey much when you say forex is the largest financial market in the world. You’ll have to look at its average trading volumes per day to see how big it really is. The latest estimate puts this number at $5.1 trillion! Spot trading alone accounts for 33 percent of this huge amount.
Forex is a 24/5 market, with no opening/closing bell. Between Monday morning opening in Australia and Friday afternoon close in New York, it never sleeps. Depending on when key financial centers such as London, Tokyo and New York get more or less active in the market, there are periods of higher and lower activity, but the market operates round the clock. Even if you want to trade only part-time, you will find a market at whatever time that suits you: morning, noon or night!
The huge size and the vast number of participants mean no single entity can control rates for long. Not even central banks can keep the market in their fold for long, though they sometimes do intervene in the market to help their economy. No one is big enough to corner the market.
Huge size, round-the-clock operation and a large number of participants combine to make forex a highly liquid market. If you wish to exit your position, you’ll easily find someone to take it.
Depending on when major markets are most active, slight variations occur in the liquidity level, especially for currency pairs preferred by those markets. But still, on the whole, the market will get someone to take the other side of the trade regardless of whether it’s morning, noon or evening. You can even set your trading platform to automatically close a position once it reaches the desired profit level.
The forex market has plenty of profit potential. This is because currency pairs going up or down is a profit opportunity. If you think a currency pair is going up, you buy it while it’s low. And if you think a currency pair is going down, all you have to do is sell it while it’s high. Presenting forex trading as so simple a practice may seem silly to you. Why so many people lose money trading forex?
Trading is a real-time game where discipline is important. It is the ability to be patient waiting for the right opportunity, never trying to second-guess. As a trader, you should be emotionally detached to your positions. This is important so as not to get emotional about losses or get influenced by the opinions of pundits. Successful traders hold realistic expectations about gains. Even though the market sometimes makes bigger moves, those are not regular occurrences.
In the end, successful trading is all about risk control. Start small and use leverage with caution. We emphasized the role of discipline here, but you don’t need another trader to make mistakes to reap gains either. The global economy is so vast and complex that it throws up opportunities every now and then. Large banks interfering in the market have often been unusually big opportunities for traders.
When compared to trading stocks or options, getting started as a trader doesn’t cost much money. Some brokers accept minimum deposits as low as $100. This is not to say trading with a bare minimum account is a good idea. But it demonstrates how accessible the forex market has become to an average individual. Lot size in forex is not fixed and rigid as with stocks, futures, and options markets. If you are new to this term, a lot is the size of your trade; in other words, how many units you are trading. The standard lot size is 100,000, though there are mini, micro and nano lots as well, nano being the smallest available at one thousandth the size of the standard lot. A beginner should start with the nano. Forex thus offers you the flexibility to choose from a range of lots, allowing traders to participate in the market with small accounts.
Retail transaction costs are very low for forex. Known as bid/ask spread, they are typically less than 0.1% under normal market conditions. At larger dealers, the spread could be even lower. There are no middlemen in the forex market, hence no clearing or exchange fees, except for commission fees charged by brokers.
Leverage is the opportunity to make large bets with a small account. If your broker offers you an opportunity to trade 25,000 dollars with your 500-dollar trading account, that is a 50-to-1 leverage. With a higher leverage, a small deposit is allowed to control a proportionally larger contract value. Leverage gives traders the chance to make nice profits with a minimum amount of risk capital.
FREE MATERIALS & DEMO ACCOUNTS
Most online forex brokers offer e-books and online resources about forex trading. They explain what forex is, why forex is different, and how to start training as a trader. Many also offer demo accounts to hone your trading skills. Making demo trades and following real-time forex news and charting services is the simplest and sure-fire way to make you a better trader. The best profit opportunities benefit those who have a keen eye for global and regional economic and geopolitical trends. Demo accounts give you a chance to perfect your trading skills before opening a live trading account and risking real money.