Opportunities in Forex Trading
Advantages of the Trading on the Forex Market
Key Advantages of the Forex Market:
The Forex Market is open 24 hours a day, 5.5 days a week (this includes the ability to trade beginning Sunday at 5 p.m. in the U.S.).
The Forex market is known for its liquidity, meaning foreign currency can be bought or sold in the market without a significant change in price; the price remains stable through high levels of trading.
High degree of leverage (the use of market resources and information so that the potential gain or loss becomes magnified). Also called margin, this can lead to large gains, but also big losses. Proper knowledge of the market is required to offset the risks of leverage.
There is no bear market. This is due to the global aspect of the Forex market.
The advantages listed above are the general benefits of investing on the Forex market. However, there are more benefits to investing in the Forex market that an individual with he proper knowledge can take advantage of.
24-Hour Trading Liquidity
As mentioned earlier, the Forex market is essentially a 24 hour market. As a result of this, it usually does not face lulls in the market (a bear market) or periods of illiquidity.
Investors and clients in the Forex arena can place trades continuously from Sunday 5 PM EST to Friday 4:30 PM EST; the trading pits do not close for the day. This provides the Forex trader the flexibility and continuous market opportunities that aren’t available on other exchanges.
8000 stocks vs. 4 major currency pairs
With approximately 4,500 stocks listed on the NYSE (New York Stock Exchange) and another 3,500 listed on the NASDAQ (National Association of Securities Dealers Automated Quotation System), the choices can seem both never-ending and overwhelming for an investor, and especially for a beginning investor. A benefit of the Forex market is that it only has 8 major currency pairs. This leads to a more focused and expert knowledge on a smaller scale of investment options. And, it make sit easier for a novice investor to get into the market.
RECOMMENDED READING – The Forex Trading Course: A Self-Study Guide To Becoming a Successful Currency Trader
– Abe Cofnas
The stock markets consist of a number of centralized exchanges. A problem associated with this is the involvement of middlemen such as brokers, agents, and general sales individuals. This leads to additional costs, usually accumulating in large fees. Spot currency trading eliminates the middlemen and enables clients to interact directly with market makers. As a result, Forex traders get quicker, easier access and cheaper transaction costs.
Market transparency is the ability to clearly have knowledge of what is being traded, at what price, by whom, and where. A market/exchange with a higher transparency will lead to a more efficient market. IN the Forex market an investor doesn’t need to worry about Enron scandals, or large buyouts, because they have access to real time information concerning currencies and countries. Overall, this leads to a highly efficient Forex market.
Speed and Quality of Executions
Due to the abovementioned liquidity of the Forex market, the execution speed and quality is better than that of other exchanges. In addition to this, the instantaneous availability of news and prices offers the Forex investor with the most recent information to work with.
The monetary volume and participation in the Forex market far surpasses any other market. Due to this, there are some of the smoothest trends available in any market. This offers Forex traders and investors a relief of not having to deal with significant changes in the market like price spikes and erratic investment behaviors, and it also offers a market where volatile conditions are not present as often as the other exchanges.
One of the main advantages, yet sometimes a disadvantage, for traders on the Forex is the leverage potential at their disposal. In the Forex market, traders and investors can acquire a leverage ratio as high as 400:1. If used wisely, this can lead to huge gains in short periods of time. However, leverage is considered a double-edged sword, and if not used wisely, it can lead to some large losses.