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Why Trade Forex – Benefits of Trading the Currency Market

written by: Steve McFarlane•edited by: Laurie Patsalides•updated: 7/8/2010

If you have ever wondered if forex trading is better than trading stocks, options, commodities or equities, here are some advantages of trading forex to consider.

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    The Forex market has undergone some major changes over the last 10 years. Traders with small capital bases are now able the access the over $3.2 trillion a day market, and make money on their own terms. While thousands of retail traders have entered the forex market, there are still many who sit on the sidelines asking themselves, “why trade forex” and “what are the benefits of trading the currency market.”

    FX trading allows traders to take control of their finances by trading at times that are convenient to them. Here are some of the benefits of trading the forex market:

    • High liquidity
    • High leveraging/buying power
    • The ability to edge personal savings when the local currency falling
    • The benefit of low transaction costs
    • The option to trade anywhere and at anytime
    • There are no hidden fees
    • Low initial investment
    • Simpler choice of trading instruments
    • High profit potential
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    Flexible Trading Options

    Trade Anywhere

    Most, if not all, forex brokers offer online trading. This means that forex traders can work from wherever they like (that includes Why trade forex working on a beach), providing there is Internet connectivity. Most professional traders will prefer to make their major trading decisions from their office, where they can view the charts on multiple monitors. However, being able to check up on trades, or identify trading opportunities while on the road, offers forex traders a distinct advantage.

    Trading Forex gives traders the option to trade at their own time or pleasure. The same could have been said about the equity and commodity markets, if they were active 24/7.

    Trade Anytime

    In answering the question, "forex or stocks which is better" proponents of currency trading often cite the fact that the Forex market is accessible 24-hours. Actually, it's open from 3pm EST, on Sundays, and runs 24-hours a day, until 4pm EST on Fridays. While the market activity can slow down at certain times, day traders can take control of their work hours by working in any of the three major sessions, as it suits their preference or trading style. These trading sessions are: the London/European, the New York and the Asian/Australian.

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    Money Management Options

    High Buying Power/Leverage

    Quite a few brokers offer leveraging as high as 400:1. In essence, with an account of $1,000, a trader can enter a position, or several positions having a total value of $400,000. If the trader manages to enter the trades in the right direction, he can quickly make very high returns on his investment. The reverse is also true. If the market should go against a trader by a significant amount, high leveraging will cause a margin call.

    Edge Personal Savings

    Forex traders have the benefit of being able to move their investments around to maximize returns. A trader can easily transfer his investment to a currency that has superior interest rates, or has strong macroeconomic fundamentals. In many cases, he can do this with greater ease than he would experience when making a withdrawal from his personal bank account.

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    Low Transaction Costs

    Almost all brokers offer commission free trading. The only cost to enter a trade is the price spread (the difference between the bid and ask price), of the pair being traded. In some cases this spread is less than 1 pip (the minimum increment in any currency pair).

    No Hidden Fees

    Except for interest on carry trades, the deposit and withdrawal fees and the currency spreads (cost to enter a trade), there are no other fees associated with trading the Forex market.

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    On the next page, we will continue to look at the benefits of currency exchange rates trading.

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    Benefits of Trading the Currency/Forex MarketThis article looks at some of the benefits and reasons to trade Forex. Trading the forex market has several advantages including: low transaction costs, the option to trade anywhere and at anytime, no hidden fees, low initial investment, a simpler choice of trading instruments.
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    A More Robust Market Environment

    High Liquidity

    One benefits of forex trading forex is the fact that it is the most liquid financial market in the world. The high trading volumes ensure that there is always someone to take the other side of a trade; this allows traders to open and close trades with ease. In addition, the Forex market is so large that no one person or institution can easily manipulate it in a sustained manner.

    Low Initial Investment

    Start-up costs are low, when compared to trading the stock or futures markets. While some brokers still have minimum deposit requirements that are in the tens-of-thousands, there are quite a few reputable brokers who will accept initial deposits as low as $1; Forex or stocks which is better to trade? one such broker is Oanda.

    Simpler Choice of Instruments

    More than eighty percent of all trading transactions are made in the seven major currencies. The major currencies are: US Dollar (USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), and Swiss Franc (CHF). This liquidity allows day traders to focus on a few trading instruments (currency pairs). Therefore, a trader can get to know each pair better, and therefore become a specialist.

    However, traders are not limited to trading the major currency pairs. Most currencies have crosses that make it possible to participate in all of the major economies around the world. A Forex cross is one that is not regarded as one of the major currency pairs.

    High Profit Potential

    Another advantage of trading Forex is that you can make money when prices are falling, just as easily as when prices are rising. There is no penalty or rule against short trading, you can buy or sell a currency against any other currency, once your Forex broker offers that currency pair. Some refer to this characteristic as the perpetual bull market.

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    The benefits of Forex trading are many. From the ability to trade whenever or wherever you choose, to having the flexibility to focus on any of the highly liquid major currency pairs; Forex traders have no shortage of trading opportunities.

    Image credits:

    "Forex or stocks which is better to trade?" Lars Plougmann

    "Reasons to trade forex." Giorgio Montersino