The concept of trading has evolved in the past couple of years with online trading platforms available on the internet so that anyone can trade. But trading is not something for the faint of heart or inexperienced traders. It is suitable only for those who have a sound knowledge of it. Just like every market has its own advantages and points of attraction, forex market, also referred as foreign exchange trading or currency trading, has its own advantages and benefits that cannot be overlooked even if you have been trading in other markets like options, stocks, futures, or energies. Some of the key advantages of forex trading are mentioned below in this article.
24 Hour Market
Because of its availability worldwide and 24/7, the forex market never sleeps. The trading starts when the markets open in the evening on Sunday in Australia and close in the afternoon on Friday in New York. This means that during this duration, the market is open somewhere in the world.
Out of all the markets in the world, the forex market is the most liquid of all. This is since there is always a continuous demand and supply of money, mainly because of the enormous size of the market, which means you would never get stuck in a trade. Since the market is open 24/7, it means that you can decide the time when you want to trade.
Low Transaction Costs
The cost of a transaction in forex trading is typically less than 0.1% and is built into the transaction costs which is the bid and ask spread. This spread is the difference between the buying and selling price of a currency pair. And since there is no intermediary involved in trading currencies, there are no brokerage fees or commissions involved that you need to pay hence making the overall transactions costs lower.
In every other market, a lot size is fixed which is used to trade. But in the forex market, there is no fixed lot size, which makes it more accessible as you are able to determine your own lot or position size. You can even start with a relatively small amount of capital which makes it one of the biggest advantages of forex trading for small size traders or those who are beginners and want to start out with a small exposure in the market.
Leverage basically gives the trader the ability to trade a large amount of money in market contrary to the money available in the account. Forex trading allows the use of leverage and follows the rule of thumb that ‘the larger the capital, the bigger the trade size’. This means you can gain larger profits with the money that you don’t even owe. But leverage is a double-edged sword. With higher profits comes higher risk which means that there is always a need for proper risk management tools to smoothly trade forex with the help of leverage.
An example to explain leverage is that you take leverage of 10-to-1. This means that you are able to trade 10 times the original amount that you have in your forex account.