Why Trade Forex?

When first learning about the Foreign Exchange market many people ask the question, “why should I trade foreign currencies instead of stocks or futures?” Well there are actually many advantages to trading foreign currencies in the Forex market over any other financial market in the world. Here we will go through several of them and tell you what makes the Forex market such an advantage for investing your money.

Since the world’s different economies tend to fluctuate so much and the value of the dollar constantly fluctuates, the Forex market has become a place of excitement and great opportunity for investors. Not only does it present profitable investments but it has also helped to interconnect national economies with one another making for a gigantic financial market that has opportunities for all investors Along with that, there are many different advantages to trading in this market.

No Commissions: In the Forex market there is no clearing fees, no exchange fees, no government fees, and no brokerage fees if you trade with a market maker.

No Middlemen: Currency trading in a spot market does away with the middlemen and allows clients to interact directly with the market maker responsible for the pricing on a particular currency pair, if you trade with an Electronic Communications Network (ECN).

No Fixed Lot Size: In Forex spot market, you determine the lot size appropriate for your needs. This gives traders the chance to participate with accounts well under $1,000, as well as providing significant money management tools.

Low Transaction Cost: In today’s market, pip spreads can be as low as zero during some periods for the most actively traded currency pairs but they typically are between 2 and five pips.

High Liquidity: With an average daily trading volume of approximately $4 trillion, Forex is the most liquid market in the world. What this means is that traders can enter or exit the market at will in almost any market condition.

Instantaneous Transactions: Even though it isn’t instantaneous, it’s as close as any market can be. This comes because of the high liquidity of the market.

Low Margin, High Leverage: This increases the potential for higher profits and losses. Leverage can be up to 400 percent but 50 to 100 percent is average. A 400:1 leverage would mean that $100 controls $4,000.

24-Hour Market: This allows traders to take advantage of the market at anytime that best suits them. You don’t have to wait for the opening and closing each day.

Interbank Market: This is the backbone of the Forex market. It consists of a global network of dealers that are mainly major commercial banks that trade with one another and with their clients through electronic networks and telephone.

No One Can Control the Market: Since the Forex market is so large and with so many participants, no single entity can control the market price for an extended period of time.

No Insider Trading: Because of the markets size and de-centralized nature, there is zero chance for ill effects caused by insider trading.

Limited Regulation: There is very limited governmental influence via regulation in this market, mainly because there is no centralized location or exchange. However, many countries do have some regulatory say and by the looks of it more may be coming.

Online Trading: The option of trading online was the driving force for retail Forex. This gives the trader a wide variety of options, such as brokers, to choose from today.