The forex markets continues to remain one of the more popular options for traders today – with more than $ 4 trillion in daily trades a day. This article outlines the reasons why forex markets remain so popular even today, with other options available. Several advantages of forex trading have been highlighted.
Low fees: Fees and commissions payable to the forex broker are the lowest across all financial sectors.
Low transaction costs: The costs of the transaction is built into the price, often called ‘spread’ – the difference between the bid-ask prices.
24/7 access: Since forex markets are spread all across the world, markets are open throughout.
Focus: Forex trading is done through currency pairs – the first currency is the base currency and the second one is the quote currency. The eight most traded currencies are the US Dollar, the Euro, the British Pound, the Japanese Yen, the Canadian Dollar, the Swiss Franc, the New Zealand Dollar and the Australian Dollar. Such a narrow set of choices avoid possible confusion.
Go long or short: When trading in forex markets, you may choose to go long or short, i.e., you may make money on both rising and falling markets. On the other hand, when you trade on shares, you can only profit when the price of the share purchased goes up.
Liquidity: The sheer volume and size of the forex market makes it the most liquid market in the world. All currencies you buy can easily be sold and you will never be stuck with currency that won’t find buyers.
Leverage: Most forex traders make use of leverage provided by forex companies. A leverage of 1:10 implies for every £ 1 you have in your account, you can control trades of upto £10. Leverage is a wonderful tool to magnify returns on your forex trades. However, excessive leverage may lead to unseen losses and destroy your account. Hence, it is wise to use adequate leverage and not excessive leverage when engaging in forex trades. This is especially very important in the early stages of your forex trading career.
Article courtesy of etxcapital.co.uk