Chapter 2 Advantages of the Forex Market
The foreign exchange market, also known as the currency or forex (FX) market, is the world’s largest financial market. As a market with the highest liquidity in the world, it witnesses over $5 trillion worth of currencies traded every day.
There are many advantages of trading forex. Here are just a few reasons why so many people are choosing this market:
1. Easy Access
You would think that getting started as a currency trader would cost a ton of money. The fact is, online forex brokers offer “mini” and “micro” trading accounts, some with a minimum deposit of $25. Your lots and position size are totally determined by yourself.
It doesn’t mean every novice should open an account with the bare minimum, but it does make forex trading much more accessible to traders who lack start-up money.
2. Open 24 Hours
There is no waiting for the opening bell. From the Monday morning when the New Zealand market opens to the Friday afternoon when New York session closes, the forex market never stops. This is awesome for those who want to trade on a part-time basis, because you can place your orders at any time: morning, noon, night, during breakfast, or even when you are asleep.
3. High Liquidity
Not only is the forex market so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will as another tradert will trade against you. You are never “stuck” in a trade. You can even set your online trading platform to automatically close your position once your desired profit level (a take profit order) has been reached, and/or close a trade if a trade is going against you (a stop loss order).
4. No One Can Control the Market
The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank or the mighty Chuck Norris himself) can control the market price.
5. Highly Leveraged Market
In forex trading, a small deposit can control a much larger total contract value. Leverage gives traders the ability to make nice profits, and at the same time keep risk capital to a minimum.
For example, a forex broker may offer 50:1 leverage, which means that a $50 margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500, one could trade with $25,000. While this is all gravy, let’s remember that leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses.
6. Two-sided Market
A major difference between stock and forex markets is that traders have always been able to access falling markets as forex trading involves buying one currency and selling another. But you could traditionally only take a long position in the stock market, as you’d be looking to profit from any future increase in the value of a company’s stock.
