Why Trade Forex?
Forex, or Foreign Exchange, is a form of trading that has been growing in popularity. Over the last decade, it has become a more available and therefore more common investment option for individual traders. There are many advantages to trading Forex which is why so many people are now starting to use it as a means of investment. Here are some of the benefits of trading in the forex market:
- Market Hours – Because it is a global market, the Forex market operates 24/5 from the time the market opens in Australia to the time the market closes in the US. This means that you do not need to wait for the market to open as there are always open markets and you can trade when it best suits you. However, be aware that the greatest liquidity happens when multiple markets from around the world overlap.
- Liquidity – Forex is the largest market in the world, turning over between US$4 and $6 trillion every day, making the market highly liquid. This is a big advantage as it means that currencies can be sold and bought in large volume, without prices being affected substantially. This leads to increased price stability. It also means that there will always be someone trading so you will never be in a situation where you are stuck in a trade.
- Ability to Profit Regardless of the State of the Market – Because currencies are always traded in pairs, forex traders always buy (or go long) on the first currency in a quoted pair and sell (or go short) on the second quoted currency. This means that unlike in other markets, currency traders can profit regardless of the state of the underlying market.
- Low Costs and Fees – With plenty of competition between retail brokers, commissions have dropped and spreads have narrowed over the past few years, making forex trading a cost-effective trading option. There are no hidden fees and commissions – all the costs of trading are included in the spread so it is easy to see where you stand. In addition, it is possible to open an account and start trading with as little as $500, making it accessible to all types of people.
- Wide Range of Markets – The vast majority of trading is done in the world’s major currencies – with the four major currency pairs including EUR/USD, USD/JPY, GBP/USD and USD/CHF, however Forex traders also have access to emerging markets and can trade currencies such as Polish Zloty and Mexican Peso.
- No Single Entity Can Control the Market – Because of the size of the market, no single entity is able to corner the market and control the market price for any extended period of time. Not even the Central Bank.
- Leverage – Leverage can work in favour of the forex trader in that small deposits can control a significantly larger total contract value. This makes it easier for the forex trader to make bigger profits and can also help keep risk capital to a minimum.