Trading forex has numerous benefits and advantages.
Here are a few of the reasons why so many individuals prefer this market:
There are no clearing costs, exchange fees, government fees, or brokerage fees. The “spread” is how most retail forex brokers are compensated for their services.
No Fixed Lot Size
The exchanges establish lot or contract sizes in futures markets. A standard-sized contract for silver futures, for example, is 5,000 ounces.
You can trade smaller lot sizes or position sizes in FX. This enables dealers to open deals with as few as 1,000 units.
Low Transaction Costs
Under normal market conditions, the retail transaction cost (the bid/ask spread) is often less than 0.1%.
The spread on larger transactions could be as low as 0.07%. Of course, this is dependent on your leverage, which will be detailed later.
24 Hour Market
There is no need to wait for the opening bell. The FX market never sleeps, from Monday am in Australia to Friday afternoon in New York.
This is fantastic for individuals who want to trade part-time because you can trade whenever you want: morning, noon, night, over breakfast, or while sleeping.
No one can Corner the Market
During active trading hours for the major currencies, the FX market is sufficiently liquid that serious manipulation by any single firm is all but impossible.
The foreign exchange market is so large and diverse that no single organization can maintain market price control for an extended period of time.
A little deposit in forex trading can affect a considerably bigger overall contract value. Leverage enables the trader to achieve large rewards while keeping risk capital to a minimal.
Because the forex market is so large, it is also very liquid. This is advantageous since it means that under normal market conditions, you can purchase and sell at will with the click of a mouse.
You’re never “trapped” in a trade. You can even configure your online trading platform to automatically close your position if your desired profit level (a limit order) is met, and/or to close a trade if it is losing money (a stop loss order).
Low Barriers to Entry
You’d think that starting out as a currency trader would be prohibitively expensive. The truth is that it does not, when compared to trading stocks, options, or futures.
Online forex brokers provide “mini” and “micro” trading accounts, with some requiring a $50 account investment.
We are not suggesting that you open an account with the bare minimum, but it does make forex trading much more accessible to the typical person who does not have a large amount of start-up trading capital.
Next Lesson: Why Trade Forex: Forex vs Stocks