The currency market has seen an explosive growth in the last decade. Some estimates place it at over 5 trillion dollars traded every day, which makes forex the largest and most liquid market in the world. Known as foreign exchange, FX, and Forex, the currency market was traditionally unavailable to the non-institutional trader. However, this is no longer the case. Currency trading is now open to anyone willing to climb the learning curve.
The reasons for its popularity vary from trader to trader, but some of the advantages include 24 hour trading, high leverage, no commissions, and no restrictions preventing traders from shorting any currency. Additionally, the Forex market is global, and it regularly makes significant moves throughout the 24 hour cycle.
Leverage
Leverage in Forex is much higher than in other, more traditional markets. Rather than trading with a ratio of 1:1 (one to one) or even 10:1, the FX market offers leverage up to 500:1 leverage. Thus, with $1,000 investment you actually control $500,000. This makes it easier to capitalize on smaller moves, and intensifies the profit (and loss) in a larger move.
Trades executed 24 hours a day
A 24 hour trading day is attractive to many people. The market moves in three distinct phases as different regions open and close. New York usually sees the largest moves, but the London and Tokyo sessions also experience significant price fluctuations. Trading your choice of currencies at your preferred time of day means a great deal of flexibility. There is no need for those on the West Coast to be at the trading station at 6:00 O’clock in the morning – not any more. A trader may profit from the euro, yen, or dollar, at any time of the day or night, and in any market direction, up, down, or even sideways.
Liquidity
The massive liquidity of forex means you will never experience a delay when executing a trade. Traders do not have to wait for an up-tic before shorting a currency. No restrictions exist; regardless of market direction it is always possible to short any currency. Unlike equities or futures, with forex you will never have trouble buying or selling any position. You will never have to hold when you would rather sell.
Associated costs:
No commissions are paid on currency trades. The brokers make money on bid-ask spreads rather than commissions. This fact makes it less expensive to transition in and out of multiple positions. This is especially important for short-term traders such as day traders. Spreads differ from broker to broker, so be sure to check this small cost, as well as the potential for any slippage. Some market makers today offer guaranteed quotes, so even slippage can be eliminated – almost always. There are extreme periods of volatility that make it unavoidable, but this is rare.
ECN-type (Electronic communications Network) brokers are becoming popular, allowing access to the biggest of the big players. There are benefits as well as disadvantages to using an ECN that are worth investigating. For example, you may pay commissions on every trade with an ECN, but you benefit from very tight spreads. At times of high volatility the bid-ask spread is sometimes widened, but this is no different from typical retail market makers, and it’s an understandable practice. The ECN uses a more ethical approach to another important dilemma: Most brokers take the opposite side of your trade, which seems to be a conflict of interest. Although justified as a means to facilitate liquidity, this looks like a bet against the customer. It presents some serious ethical issues that are absent when trading through an ECN.
Although trading in national currencies was once the exclusive domain of large banks and institutions, this has changed forever. Regardless of your trading style, the forex market offers unique advantages over other markets. From your home office, the beach, or in Mexico City, with an internet connection you are now in complete control of your financial destiny, and able to compete with other traders, big and small alike. Whether trading full-time for a living or part-time as a hobby, you should find out what advantages forex holds for you.
To learn more please visit www.clmforex.com
Disclaimer: Trading of foreign exchange contracts, contracts for difference, derivatives and other investment products which are leveraged, can carry a high level of risk. These products may not be suitable for all investors. It is possible to lose more than your initial investment. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. A Product Disclosure Statement (PDS) is available from the company website.. Please read and consider the PDS before making any decision to trade Core Liquidity Markets’ products. The risks must be understood prior to trading. Core Liquidity Markets refers to Core Liquidity Markets Pty Ltd. Core Liquidity Markets is an Australian company which is registered with ASIC, ACN 164 994 049. Core Liquidity Markets is an authorized representative of Direct FX Trading Pty Ltd (AFSL) Number 305539, which is the authorizing Licensee and Principal.
