As one of the most lucrative financial markets in the world, Forex is the first investment choice for many of today’s investors. And there are many reasons for that. First of all, you don’t have to be physically present when trading currencies. Today, the era of electronic markets has taken over. Thus, buying and selling a particular country’s currency against another country’s currency can be done over the Internet.
Traders open a position for a chosen currency pair and hope for some strengthening in value if the goal is to buy or some weakening if the goal is to sell. Hence, price movements are a kind of tool enabling traders to make profits. Apart from that, we enlist the other advantages of Forex trading to consider if you are about to invest your money in online trading.
The massive volume of currencies traded every day worldwide (over $ 4 trillion) allows instant execution of orders at prices displayed in real-time and guarantees price stability. The foreign exchange market’s high liquidity makes it possible to quickly convert purchases or sales transactions without causing significant price variations.
Therefore, the slippage (difference between the price of the order and the price executed) is significantly reduced. By comparison, the equity market is subject to price manipulation, wider spreads, and greater risk of price fluctuations due to the lower volume traded each day.
Macroeconomic indicators influence fluctuations in currency pairs prices on Forex. There is no insider trading in Forex because indicators like central bank interest rates, unemployment rate, inflation rate, gross domestic product, or fiscal policy are known to all traders in advance. Therefore, unlike the stock market, which is influenced by microeconomic data, there are very few indicators to watch, so it is easier to follow the forex market’s news.
One of the advantages of Forex and currency trading is that Forex brokers don’t charge transaction fees. They profit through the difference between the purchase price and the sale price (the spread).
Compared to trading stocks, the cost of a Forex transaction is ten times less. And there is no custody fee or minimum transaction volume. Regardless of the size of the trade, the costs and conditions of trading are often the same.
The average currency fluctuation is less than 1%. The leverage offered by brokers goes between 100: 1 and 500: 1. It considerably increases the possibilities of gains but also of losses. With a leverage of 100: 1, Forex traders can take a position of € 500,000 with a margin deposit of only € 5,000.
With such leverage, even small market fluctuations will have a strong impact on trading capital. However, using leverage requires rigorous risk management discipline and the systematic use of limit and stop-loss orders.
By trading in the currency market, you buy the base currency and at the same time sell the counter currency. Investors can therefore trade the market in a downward or upward trend, short or long. The possibilities of earnings are, therefore, immense, whatever the price movement is.
Unlike the equity markets, the Forex is open 5 days a week without interruption. Investors who don’t have time to trade during the day can trade when they wish and not at imposed times.
Forex brokers provide reliable and secure trading services and software, with which traders can view real-time currency quotes as well as place orders to buy or sell positions (currencies) with just a few clicks. Making a good choice regarding the brokerage company is the first condition to start trading in an informed and secure way.