Discussion Topic: Forex Benefits & Advantages
We have already learned about Forex Trading and Currency Pairs. Now it’s the time to know the major Advantages of Forex Trading and some of the top Forex Trading Benefits. Here we would be talking about 10 most important advantages that encourage traders to trade forex in the spot market. So let’s jump to the topic.
Forex Trading Benefits:
Here's the list of Benefits that you may get while trading forex. This list has been prepared by keeping in mind that you are going to trade mostly in spot forex market. So, here's a list describing the benefits of trading forex:
Benefits of Trading Forex 01 - Low Costs
In the Spot market, normally there is no clearing fees, no exchange fees, no government taxes, no brokerage fees, and no commissions. Retail brokers usually make their profits from the Bid/Ask Spread which is apparently very transparent to users. [Though in some cases they may charge swap fees, but traders can control it].
[See Also: Understanding Bid/Ask Spread]
Benefits of Forex Trading 02 - No Middlemen
Spot forex trading eliminates the requirement of middlemen and provides a benefit by allows you to trade directly with the market accountable for the pricing of a specific currency pair.
Forex Trading Benefits 03 - No Fixed Lot Size
Unless you are trading in future or options, in the spot market there is no fixed lot size for trading. This seems to be one of the biggest benefits of forex trading. Usually, brokers provide the option to buy in multiple lot sizes as per your convenience, hence you require less money to start trading.
Lot sizes may be a standard lot, a mini lot, a micro lot, or even some brokers allow purchasing in nano lots. This makes easier for traders to trade with very low capital (even as low as $50).
[See Also: What is Lot? How to Calculate Lot value?]
Forex Trading Benefits 04 - Low Transaction Costs
The retail transaction cost (the bid/ask spread) is usually less than 0.1% under normal market. At larger dealers, the bid/ask spread could be as little as 0.07%. [Note: This depends on leverage you take].
Forex Trading Benefits 05 - No One Can Corner the Market
The foreign exchange market is so large (approx 5.1 trillion dollars) and has so many participants that no single entity (not even a central bank) can control the market price for a prolonged time period. Hence the chance of extreme drop or gain in exchange price is very low.
[See Also: How Currency Exchange Price is decided?]
Advantages of Forex Trading:
As you have already gone through the benefits of Forex Trading, Now it's the time to know the main Advantage of Forex Trading:
Advantages of Trading Forex 06 - 24 Hour Open Market
There is no waiting for the everyday opening bell. From the Monday morning opening in Australia (Sydney session) to the afternoon close in USA (New York session), the forex market is always open.
This is fabulous for those who would like to trade on a part-time basis because you can choose your own time for trading: morning, afternoon, night, during breakfast, lunch, dinner, or in your sleep.
[See Also: How Forex Market Operates 24 Hours a Day?]
Advantages of Trading Forex 07 - Use of Leverage and Margin
This is the advantage which drags more and more investors towards Forex Trading. Forex brokers permit traders to trade the market using leverage and with low margin, which gives the ability to trade more money on the market than what is available in your account.
Which means, in forex trading with a small deposit you can control a much higher total contract value. Leverage gives the trader the chance to make higher profits, and concurrently keep risk capital to a minimum.
[See Also: What is Leverage and Margin in Forex Trading?]
For example, a forex broker may offer 100-to-1 leverage, which means that a $25 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $100 dollars, one could trade with $10,000 dollars and so on.
While this may sound like heavenly dreams, be cautious that taking very-high leverage, without risk management, may wipe-out you balance within a couple of minutes.
Advantages of Forex Trading 08 - Very High Liquidity
Because the size of the forex market is so large, it is extremely liquid in nature. It means that under the normal market condition, you can instantaneously buy and sell currencies as always there will be someone in the market willing to accept the other side of your trade.
This also means you can place large orders, and that would be fulfilled without much affecting the currency exchange price.
You are not likely to “stuck” in any trade. You even have the option to set your online trading platform to automatically close your position once your desired profit level (a limit order) has been met, and/or close a trade if it's going against you (a stop loss order).
Advantages of Forex Trading 09 - Low Capital Requirement
If you compare the spot market with Stocks, Futures, or options trading then you would realize that it takes much lower capital to enter into the trading.
Apart from a standard account, many online forex brokers offer “mini” and “micro” trading accounts, which usually require $25 or $50 as a minimum account deposit.
Forex Advantages 10 - Profit Potential from both Rising and Falling Market
The Forex market has no restrictions on trading direction. That means, if you think a currency pair is going to increase in value, then you can buy it or go long. In the same way, if you think it could decrease in value, then you can sell it or go short.
In either case, if your trade goes right then you make Profit. [But beware of Swap charges that may kill your profit].
Thank God!! Now here comes a bonus advantage of Forex Trading.
Forex Advantages 11 - Free Stuff Available Everywhere!
The most critical part of trading is the availability of free tools and learning material, which can prepare you for live trading. Here is some good news for you:
Majority of online forex brokers offer “demo” accounts for practicing and building your trading skills. They also provide real-time forex news and charting services. Moreover, all of these offerings comes at no extra cost.
You can use those demo accounts grow your trading skills and test your strategies before opening a live trading account and risking real money.
You also don’t have to worry about learning the trading strategies and philosophies as I have started this FinanceOrigin website with a goal to provide you those learning for free.
We hope that you have enjoyed the above article on Forex Trading Benefits and Advantages. Be with us to explore forex trading, stocks trading, and other money-making opportunities.
Leave us some comments if you have any questions or suggestions on the Advantages of Forex Trading. Also, let us know which of the Advantages you are utilizing to do your daily trades.