Advantages

The forex market, advantages & benefits.

Here are the top eight reasons why so many people are choosing to trade in the forex market.

Forex trading eliminates the middleman and allows for over the counter trading. The market is responsible for the pricing on a currency pair. You trade in what is known as the spot market through a retail broker. There are no brokerage fees, exchange fees, or clearing fees. Retail brokers make money for their services through “bid-ask spread”. Bid-ask spread is the amount by which the ask price exceeds the bid. This is essentially the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it. Example, if a bid price is $1 and the ask price is $1.25 then the “bid-ask spread” is $0.25.

Forex markets are open 24 hours a day Monday through Friday. The morning session is Japan which spills over into the afternoon London session and New York comes last. Morning, noon, or night all depends on where you live. For forex markets there are no opening bells, awesome for part-time trades. The forex market never sleeps during the week.

The retail transaction costs are usually very low because of the markets liquidity. The bid-ask price is typically less than a tenth of a percent. For larger dealers the spread can be considerably lower depending on the leverage. You only pay the spread when you buy currency. The spread is really the only cost of trading forex. Spreads can vary based on what currency pair you’re trading and what type of account you have with a particular broker.

In spot forex market you can determine your own lot or position size. You can find that other markets trade in fixed lot sizes or standard lot sizes. New forex traders can open small accounts with as little as $25. This is made possible with the use of leverage. Leverage gives the trader the ability to trade with more money and keep capital risk low. For example, a forex broker may offer 100-to-1 leverage. So if you deposit $100 you can trade with $10,000. You must remember that with a high degree of leverage comes higher risk. Proper risk management can prevent large losses.

Forex is such a huge market with so many traders that no one can corner the market. Not even the Federal Reserve can control the market price for an extended period of time.

When a market is trading over $4 trillion daily you will never get “stuck” is a trade. The market is full of buyers and sellers willing to take your trade. Under normal market conditions, your trades will usually be instantaneous. This makes it possible to set up your trading platform to open or close our desired position and minimize losses with a stop loss order.

You can set up a free demo account with most forex brokers to learn and test your strategies. You can learn and build your skills in the real market with play money. Even the professional trader uses these types of accounts to test new strategies before using them and risking their real money.