Why Trade Foreign Currencies?
By: Stephanie
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Why should you trade foreign currencies?
There are so many benefits and advantages to trading Forex, it is impossible to list them all. Here are just a few reasons:
- More Efficient
- There are about 6 major trading pairs in the Forex market. Compare that to the 7000+ stocks to choose from, and you can see that it is MUCH easier to review charts and information from 6-20 currency pairs than 7000+ stocks.
- No commissions
- No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called “the spread”.
- Low transaction costs
- The “spread” is how the brokers make money, and is typically less than 0.1 percent of the trade, under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on many things, including leverage.
- Leverage
- Much like with Futures, in Forex trading a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, some brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But without proper risk management, this high degree of leverage can lead to large losses as well as gains.
- High Liquidity
- The Forex market volume is more than 3 times that of the stocks and futures markets combined! This means that under normal market conditions you can instantaneously buy and sell at will. In a fast moving market, there might be a small drift in price known as “slippage”. But generally you are never "stuck" in a trade. Your contract will almost ALWAYS get closed out within a few seconds of your order.
- No fixed lot size
- Unlike a futures contract where there are specific lot sizes set by the exchange, with Forex you have the option of many different size contracts. This allows traders to participate even with accounts as small as a couple hundred bucks. However, having an account that small is probably a bad idea, which we talk about when discussing leverage and margins.
- A 24-hour market
- For those traders that want to trade at odd times throughout the day, there is no waiting for the opening bell; from Sunday evening to Friday afternoon US Eastern Time, the Forex market never stops.
And the most important reason to trade foreign currencies? Because you have angels to help you learn and master the forex market.
So there are the main reasons why you should trade on the forex market. Keep learning and mastering Forex with me, and PipsAngels.com. See you soon!
