Advantages of Trading FOREX over Stocks and Commodities
There are many advantages to Trading FOREX as your main income
generator. We can start by something that may be worrying many
already."Do I need a Diploma or Certification to trade the
FOREX?" The answer is NO: When attempting to make more profit
than losses on the fluctuation of exchange rates between major
currencies(i.e.,Trading the FOREX), nobody is going to ask you
for a diploma, a formal license or verify the amount of hours
you've spent studying the Foreign exchange market and banking
industry. All you need is the proper training.
But this is not the only advantage you get when trading FOREX,
compared to other ways of investment and speculation; i.e.
Stocks and Commodities. You have a whole bunch of advantages
over these other options that will be enumerated in the
following paragraphs.
The Main Benefits of Trading the FX Spot Market:
1): FOREX is the largest financial market in the world.
With a daily trading volume of over $1.5 trillion, the spot
FOREX market can absorb trading sizes that dwarf the capacity of
any other market. In fact, when compared with the $50 billion
daily market for equities or the $30 billion futures market, it
becomes quickly apparent this gives you, and millions of other
FOREX traders, almost infinite trading liquidity and flexibility.
2): FOREX is a TRUE 24-hour market.
The FOREX Market never sleeps. Trading positions can be entered
and exited at any moment - around the globe, around the clock,
six days a week. There is no waiting for an opening bell as in
the case of trading stocks. It is a 24-hour, continuous
electronic (ONLINE) currency exchange that never closes. This is
very desirable for you if you want to trade on a part-time
basis, because you can choose when you want to trade: morning,
noon or night.
3): There is never a Bear Market in FOREX.
You can have access to a seamless, mutually-inclusive (two-way)
exchange of currencies. Meaning, because currencies trade in
"pairs" (for example, US dollar vs. yen or US dollar vs. Swiss
franc), one side of every currency pair (for example, USD/JPY -
JPY = YEN) is constantly moving in relation to the other. Thus,
when you buy a particular currency, you are actually
simultaneously selling the other currency in that particular
pair. As the market moves, one of the currencies will increase
in value versus the other. Of course, it is up to you to choose
the correct currency to be long or short. Since currency trading
always involves buying one currency and selling another, there
is no structural bias to the market. This means you have equal
potential to profit in both a rising or falling market.
4): High Leverage - up to 200:1 Leverage.
You are permitted to trade foreign currencies on a highly
leveraged basis - up to 200 times your investment with some
brokers. This is primarily attributed to the higher levels of
liquidity within the currency markets. Standard 100,000-unit
currency lots can be traded with as little as 1% margin, or
$1,000. Mini FX accounts are permitted to trade with just 0.5%
margin -- in other words, just $50 allows you to control a
10,000-unit currency position. Futures traders, who are
accustomed to margin requirements generally equal to 5%-8% of
the contract value, will immediately recognize that the FOREX
market provides much greater leverage, and for stock traders,
who must post at least 50% margin, there is no comparison. If
you are looking for an efficient use of trading capital, this is
the answer.
5): Price Movements Are Highly Predictable.
Although currency prices in the FX market may be volatile, they
generally repeat themselves in relatively predictable cycles,
creating trends. The strong trends that foreign currencies
develop are a significant advantage for traders who use the
"technical" methods and strategies taught at a number of
sources.
Unlike stocks, currencies rarely spend much time in tight
trading ranges and have the tendency to develop strong trends.
Over 80% of volume is speculative in nature and, as a result,
the market frequently overshoots and then corrects itself. As a
technically-trained trader, you can easily identify new trends
and breakouts, which provide for multiple opportunities to enter
and exit positions.
6:) Commission-free Trading and Low Transaction Cost
When you trade FOREX, through one of our recommended brokers
(this info is in our private resources section), you'll do it
totally commission-free! These brokers don't charge commissions
to trade or to maintain an account, and that goes for all
clients trading the FOREX through them, regardless of your
account balance or trading volume. Even Mini FX traders can buy
and sell currencies online, commission-free.
What about trading fees? There are none of the usual fees to
which futures and equity traders are accustomed - no exchange or
clearing fees, no N_F_A or S_E_C fees. Because currencies trade
over-the-counter (OTC), via a global electronic network -- in
FOREX, what you see is what you get, allowing you to make quick
decisions on your trades without having to worry or account for
fees that may affect your profit/loss or slippage.
In the equities markets, you must pay both a commission and
exchange fees. The over-the-counter structure of the FX market
eliminates exchange and clearing fees, which in turn lowers
transaction costs.
So, if a FOREX broker don't charge commissions, how do they
make money? Like all traded financial products, over-the-
counter currency trading involves a bid/ask spread, which
represents the prices at which your counterparty is willing to
trade. Because the currency market offers round-the-clock
liquidity, you receive tight, competitive spreads both intra-day
and night. Stock traders can be more vulnerable to liquidity
risk and typically receive wider trading spreads, especially
during after-hours trading.
7): Instantaneous Order Execution and Market Transparency.
Market transparency is highly desired in any trading
environment. The greater the market transparency, the more
efficient the market becomes. Unlike other markets where
transparency is compromised (like in the Enron scandal), FOREX
markets are highly transparent (i.e., analyzing countries, and
having access to real-time research / news, is easier than
companies).
Because of this transparency, as an FX trader, you will be able
to exercise risk management strategies in accordance to the
proper fundamental and technical indicators.
The Forex market offers the highest level of market transparency
out of all the financial markets. Because of this, order
execution and fill confirmation usually occur in just 1-2
seconds. Markets that do not offer executable prices and force
traders to absorb slippage obviously compromise the trader's
profit potential considerably.
In the forex world, order execution is all-electronic and
because you'll be trading via an Internet-based platform,
instantaneous execution is routine. There are no exchanges, no
traditional open-outcry pits, no floor brokers, and
consequently, no delays.