12 min readForex trading, one of the most sought-after trading avenues, has increasingly become a go-to for individuals exploring a broad spectrum of profit-generating assets. In this guide, we’ll delve into the advantages of forex trading, its distinctions from stock trading, and the key markets to keep an eye on.
What Are The Benefits Of Forex Trading?
Foreign exchange trading (forex) is a common way of making money by buying and selling various currencies. It is widely spread all over the world with the biggest markets situated in Hong Kong, Tokyo, London and New York. If you are considering forex for trading and making investments, read on to find out its benefits and peculiarities.
Long- and short-term trading options
As far as traders often buy or sell according to their predictions of market moves, you can easily go short or long. Thanks to high volatility, brokers do not charge large transaction fees for both types of trading, unlike it happens in traditional stock markets. Thus, the duration of a trade is not limited, which makes forex suitable for scalping and long-term strategic trading.
Since currencies are traded in pairs, you always buy one asset and sell the other, regardless of whether you go short or long. Unlike in the stock market where traders borrow funds first, forex participants can sell a currency they don’t own, which simplifies the process of order placing.
You can boost earnings with leverage
Leverage is a loan in the form of cash or securities provided to a trader to conclude a transaction. The broker’s loan in forex trading can exceed the amount of the trader’s deposit by 10, 20, 100 or more times. For example, x5 leverage turns the trader’s $2,000 deposit into $10,000. Hence, it enables trading on forex with larger sums and allows users to multiply their earnings (risks increase correspondingly).
It works around the clock
Possibility of active round-the-clock trading. On the Forex market, you can find active currency pairs for trading at any time of the day. Forex is open 24 hours a day, 5 days a week. For many traders, forex trading is a way of earning extra money, so people working full-time have the opportunity to conclude Forex trades after or before their main job.
Here’s how it functions:
- Wellington is the first to start trading during the day, Sydney connects to it in two hours, and Tokyo connects an hour later.
- After Hong Kong and Singapore, the Europeans take over: these are Zurich and Frankfurt am Main. And so on – all the way to Los Angeles.
- Trading stops only once a week – when the American stock exchanges close on Saturday at 01:00 GMT and the New Zealand stock exchanges re-open on Sunday at 10:00 PM because it is already Monday in the GMT 13+ zone.
Sufficient level of liquidity
Liquidity is the property of an asset to be quickly sold at a price close to the market price. In our case, this is the price range from high to low during a trading day, week, or another period. If we take the EUR / USD currency pair as an example, its movement on the chart will be almost perfectly smooth in any timeframe, even during one day.
On forex, a trader can make a profit here and now, because a foreign exchange market has enough supply and demand for any financial instrument, be it currency pairs, fuel prices or precious metals. According to the report of the Triennial Central Bank in 2019, the daily traded volume on global foreign exchanges was $6.6 trillion.
Volatility allows for performing deals faster
One of the major benefits of trading on forex is volatility – the range of price changes within a certain period. The point is that the quotes of currency, securities, fuel and metals are constantly changing, literally every minute. These changes can be predicted, which means you can earn using this knowledge. And you don’t even need to buy or sell anything (although you can). It is enough to place a bet on how the price will change – that’s where forex comes in.
It should be noted that exotic currency pairs, for example, PLN/JPY, have low volatility, while popular ones are more volatile. These include AUD/USD, USD/JPY, USD/CAD, NZD/USD and others.
Wide choice of trading pairs
Since forex is a global market, it’s not surprising it features a huge choice of currency pairs, both the world’s strongest national assets and emerging fiats. Hence, traders can speculate on news and events of global and local scale, major and minor economies.
There’s no need to register separate accounts to access them – you can trade using a single profile.
For example, you can operate with such combinations as:
- Popular pairs (EUR/USD, CAD/USD, GBP/EUR).
- Minor pairs (SGB/JPY, USD/ZAR, CAD/CHF).
- Emerging pairs (CAD/CHF, USD/RUB).
- Exotic pairs (TRY/JPY, EUR/CZK).
Hedging for funds protection
This trading strategy implies opening multiple positions with different directions (buy/sell) that allow reducing risks. Volatility can be unpredictable, so hedging allows traders to mitigate risks by closing deals that partially cover the losses. When one of the currency prices starts moving in the direction opposite to predicted, there’s another open deal that generates a compensational profit.
Hedging can be fulfilled through different trading strategies, but operating multiple currency pairs is the most commonly spread practice. You can select pairs with optimal ratios, for example, EUR/USD or GBP/EUR, and open positions in opposite directions.
There’s a myriad of tools at your fingertips
This advantage of forex trading is important because it allows the trader to grow and develop trading strategies instead of operating one currency pair. Aside from using multiple currency combinations, users can also benefit from such instruments as:
- Stop-loss and limit.
- Trading indicators and visual tools.
- Charts and signals.
- Trading terminal settings (automatic deal closing, volume limits, and so on).
- Demo accounts with virtual deposits.
- Educational materials (FAQ, video lessons, tutorials).
Many forex platforms offer free software unlike the futures and stock markets, where traders have to pay for their software for technical analysis and get a quote, with some traders even paying a monthly fee for the access. Almost all Forex brokers provide traders with excellent trading platforms for free, as well as forex charts that reflect the latest news and market analysis.
It’s suitable for both newbies and seasoned traders
Indeed, forex is a great place for those who have already traded different assets before and those who want to start. This is a critical advantage of the market, which has determined its popularity among the wide audience. Forex does not require special economic knowledge or huge experience. Trader’s success does not largely depend on his theoretical knowledge but mostly relies on the ability to predict the quotes of currency pairs.
It is important to understand that only 5-10% of traders manage to make a steady profit. Not because trading is difficult and there is always a risk. The majority of newcomers expect to make an easy and fast profit, and they are guided by emotions which leads to wrong decisions.
However, everyone in forex stands a chance. The entry threshold is quite low. On some platforms, users can deposit $50-100. It doesn’t mean you should start with a bare minimum, but you can try trading without risking huge money.
This type of market comes with minimum restrictions: the trader himself determines the amount of funds that he will risk, the number of bets that he wants to make, and the timeframes during which the deals will be carried out. A user is free to select trading instruments, platforms, conditions, etc. Some brokers don’t even have a minimum deposit.
There’s no single controller
Considering the size of the forex market and the number of traders, no institution, be it a bank or a government, can control asset prices for a long time. This place is a self-regulating ecosystem where rates are defined by offer and demand. Besides, forex is decentralized and runs without middlemen.
You can trade directly with other participants, while brokers help you establish this connection. Prices are influenced organically by the economy itself, not a certain controller or a company. That means you can make forecasts based on known events and news – no one is strong enough to manipulate prices to a large extent.
Agreeable transaction fees
Some brokers don’t even charge trade commissions, clearing or exchange fees. “What’s the catch then?” – you may ask. In forex, traders pay the bid / ask spread to enter the market. Spread is the difference between buying and selling currencies, which can be determined by analyzing forex charts. It should be noted that this spread represents a significant part of transaction costs, but in general, it is the only fee for the broker’s services.
Why should you trade forex instead of stocks?
If you are not sure whether to trade forex or not, decide on the assets you’re interested in. Are these currencies or shares? The first option is often considered by active traders while stocks are highly recommended for mid- and long-term deals as well as strategic investments. Many traders prefer forex to stocks thanks to:
- Convenient trading hours. While stock trading is limited by exchange hours, forex is available 24/5, from Monday to Friday with different national markets opening at different times.
- More liquidity. Although the stock market hosts millions of traders, forex boasts over $6 trillion daily turnover and features unbeatable liquidity allowing participants to perform instant transactions.
- Higher volatility. Prices on the stock market are more stable in the long run, whereas forex is more prone to rate fluctuations. That makes up for great profit-making opportunities in short-term deals, while more experienced traders also exercise scalping (very quick deals).
Finally, when choosing between forex and stocks, you should consider your readiness to take risks and financial aims.
Why Forex trade with PrimeXBT
If you want to explore forex trading, you need a reliable and convenient platform that provides a wide gamut of currencies and instruments to help you with the learning curve. PrimeXBT is a versatile trading platform that puts focus on user experience and fund security. Here’s why it should be considered by both beginners and advanced traders:
- It supports all major currencies, including USD, EUR, AUD, GBP, CAD, CHF, NZD, JPY, SDG, TRY, RUB, CNH, THB, ZAR, MXN, HKD, XAG and XAU – all in different combinations. Exotic pairs are also available.
- Traders can access a comprehensive set of instruments to learn forex and boost the efficiency of their deals: charts with real-time market data, 50+ technical indicators, stop-loss and automatic deals, portfolio manager, etc.
- Users’ deposits are secured thanks to multi-layered protection which comprises cold storage, two-factor authentication, Cloudflare DDoS protection, SSL encryption and cryptographically hashed passwords.
- Users can start exploring forex by making the minimum deposit of 0,001 BTC on their trading account.
- In case of challenges and questions, users can address customer support at any time via live chat, email or Telegram.
Is forex trading a good idea?
This market is efficient for short- and long-term deals, however, it’s more volatile than stocks. Those who don’t have experience in trading currencies should either choose more reliable pairs with low volatility (for example, USD/EUR) or consider stocks.
Is forex good for beginners?
Yes because it provides a decent choice of currency pairs, comes with convenient in-built instruments and does not require large initial deposits. But starters should always bear in mind that forex, like any other market, comes with risks and requires analysis.
Is forex a gamble?
Although it requires participants to make predictions on how asset prices will move, it has no relation to online casinos and betting. Here, price forecasts can be made based on certain news and events, and rate fluctuations are defined not randomly but by the supply and demand.
Can you get rich by trading forex?
According to statistics, only 5-10% of forex traders manage to succeed. You can be among them if you learn to analyze currencies and the market and avoid making typical mistakes. Very profitable trading is done by people who have both knowledge and experience.
Does forex trade on weekends?
No, markets are closed on Saturday and Sunday but don’t forget that they are located in different time zones. Hence, the first deals of the week can take place on Sunday evenings when it’s already Monday in New Zealand.
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