Five Advantages That Trading On Forex Has Over Other Forms of Investment. The Foreign Currency Market or 'Forex' offers many distinct advantages for traders over other forms of investment. Here are the key advantages of trading on this exciting market.
1. Trade with a Low Margin
The Forex trader is able to control a large amount of money in the markets with a relatively smaller capital deposit through the use of what is known as Margin.
For example a trading account may offer a margin of
100:1. This means that a trader can control $100,000 in the market for every $1000 deposited.
100:1. This means that a trader can control $100,000 in the market for every $1000 deposited.
Trading on margin can provide you with a highly profitable way in which to make investment returns on Forex. However it is also vital that you take the time to understand they way in which this works and the risks that are involved.
Any trading positions that you have open could be at risk of being liquidated if the available margin on your account drops below a set level. This is called a Margin call and is what most traders dread. It therefore pays to keep a close eye on your open positions and ensure you use a stop-loss in order to limit your risks.
2. No Commission and No Exchange Fees
A Forex brokerage works by matching buy and sell orders in the market. Your broker does not charge you a fee for this deal. However you will find that there is a difference between the buying and selling price which is known as the 'spread'.
Typically this will be around 2-3 pips on the more commonly traded Forex pairs such as the EURUSD or USDJPY.
Think of this as an inbuilt cost and the commission that the broker takes for executing your deal.
3. Twenty Four Hour Marketplace
The currency markets are open across a number of trading sessions. The European, New York, Asian and Pacific sessions run in sequence meaning that you can trade continuously around the globe. With the exception of the weekend you can trade twenty-four hours per day.
Trading starts in the Asian session on a Sunday evening and finishes at the close of the New York Session on a Friday night.
4. An Open Market to Trade
Stock markets are often seen as closed markets; where the distribution of information is often limited or leaked and therefore it becomes difficult to make informed decisions.
In contrast all news on the Forex markets is released at the same time. Therefore even the smallest of traders will have access to the same information as the big Investment Banks and Hedge funds.
In addition the high liquidity in the market makes it difficult even for the Central Banks to alter the value of their currency. This helps to level the playing field and removes any unfair advantage in decision making.
5. Limited Trading Risk and Guaranteed Stops
There are several ways in which you can limit your exposure to losses when trading on Forex.
The Stop Loss is the primary tool which is used to close a trade when the market has moved against your position. Ever more sophisticated risk management tools are on offer which can be used to limit your risks in the market, the most popular being Guaranteed Stops. These offer you a guarantee that your order will be filled when the market hits a predefined trading level that you specify.
By combining these with a risk calculator to calculate your risk on each trade, you are able to control the level of risk that your account is exposed to in the market.
Take advantage of the benefits offered by Forex trading as part of your investment strategy.
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