Forex trading is an abbreviation of foreign exchange trading that allows traders to trade in foreign currencies and gives a chance of making a profit. Foreign exchange is a global market that is incredibly liquid with enormous trading volume. Foreign exchange welcomes all traders with open arms whether they are a beginner or experienced. However, forex trading is not for those who don’t have the potential to bear the loss and for people with a weak heart condition.
There are a lot of reasons why millions and billions of people trade in forex across the world. Before jumping in forex trading, there are various unique advantages of forex trading over other financial markets that every trader must know.
Top 11 Advantages of Forex Trading
Here in this article, we are going to focus on some unique advantages of forex trading.
The foreign exchange market is the most liquid market in the whole world. It means there are a lot of buyers and sellers ready every time to buy and sell an asset. Liquidity can be understood by the ability of an asset to be converted into cash quickly. In the world of finance and high forex, liquidity indicates the easier movement of money in and out with little price difference in buy and sell prices. In trading, this difference between buying and selling prices is known as a spread.
The volatility of the forex market depends on various factors:
- Trade deals
- Political events, news, and policies
- Natural disasters
- The global economy as a whole
- The economic stability of a particular country
- Global Trade Wars
- Global Economic Fears
- Company-Related Movements
All these events can make forex trading highly volatile at some times, as there are significant price movements in currency conversion. This volatility can help you to make a substantial profit. You can make a potential profit by speculating the movement of prie on either side. But this could turn into a great disadvantage as well because the price movement can happen on any side. So with great benefit, there are equal chances of great loss as well.
3.Plenty of Currency Pairs
Forex trading allows you to trade in different currency pairs. You can trade various currency pairs by speculating the value based on global events, global economics etc. Here are some currency pairs which are more popular than others.
Minor Pairs: SGD/JPY, USD/ZAR, and CAD/CHF
Major Currency Pairs: EUR/USD, GBP/USD, and USD/JPY
Exotic Pairs: TRY/JPY, EUR/CZK, and USD/MXN
Emerging Currency Pairs: EUR/RUB, USD/CNH, and AUD/CNH
You can trade in all these currency pairs with a trading account.
Trading in the forex market is a continuous process because it is a global market, and if a market closes in one country then somewhere in the world a new market opens in another country. For example, if the forex trading market closes in the US, then a new market will open in Tokyo. Forex market works 24 hours a day and five days a week. It stays closed from Friday 10 PM to Sunday 9 PM (GMT). One important thing to keep in mind is that the opening hours of the Forex market vary in March, April, October and November. Because on different days in these months, countries shifts to daylight savings.
5.Low Transaction Costs
Forex trading allows you to enter the market with little capital and the translation costs are also low in forex trading. Because the brokers make money through spreads which are measured in pips. Spread is the difference between the asking price and bid price.
For example, in a forex trade selling price is 1.3428 and buying price is 1.3427, then the spread for this transaction is one pip.
Some brokers also charge a commission on the transaction. So always choose a broker that does not charge any commission or fee on the transaction such as HFTrading. HFTrading is a regulated and authorised broker that does not charge any transaction fee or commission from traders.
Forex brokers provide traders with a significant amount of leverage to buy and sell currencies in the forex market. This leverage help traders to trade with a big amount of money than the actual money in their account.
For example, the broker provided you with the leverage of 50:1; it means you can trade 50 times of the money that is in your account.
So, always choose a broker who provides good leverage to traders. HFTrading provides leverage of up to 1:500 to its clients. It means you can trade 500 times of the money that is in your account. Isn’t it amazing?
7.Risk-free Demo Account
Before diving into the ocean of forex trading, you have the chance to learn all the tricks and tactics of forex trading through a demo account. With a demo account, you will learn the techniques with practical knowledge. Some brokers like HFTrading provides their clients with a free demo account with some virtual play money in it. So that the traders can learn the basics of currency trading with a practical approach. And whenever you feel confident enough to play with real money then deposit and trade.
8.Nobody Controls the Market
The best thing about the forex market is that it is a decentralised market. Hence there is no middleman who can manipulate the market. The economy directly influences the foreign exchange market, so, not one company or one person can influence the market. Neither you can control the market, nor you can corner it. The foreign exchange market adjusts itself quickly and levels the playing field for traders.
9.Biggest Financial Market
The forex market is the biggest financial market in the world. And it is not going to give up this title any time. The foreign exchange market is used as a summary of global economic and trade activity. On a daily basis, and on average, there are around 4 to 5 trillion dollars traded in the forex market. If it is calculated hourly, it is about 200 billion dollars if calculated in a minute, then it is 3 million dollars, and in a second 50 million dollars are traded in the forex market. And all this money is traded by traders from all over the world, which make the forex market the most accessible global trading market
10.Make Profit Either Ways
Unlike the stock market, in the forex market, you can make a profit from falling and rising in both scenarios. If you think that the value of a currency pair will increase, you can go long (or buy it) and if you think that the value will decrease then go short (or sell it). This way, you can make a profit from both falling and rising values.
There are no restrictions in the forex market on directional trading. Because trading in currencies always occurs in pairs. If you are buying one currency then surely you will sell another currency it doesn’t matter if you are going short or long in it.
For example, You are trading the Euro/Dollar currency pair. So when you buy that pair, it means you will buy Euro and Sell Dollar. The first currency is known as the base currency, and the second currency is known as the quote currency. And if you sell the pair, it means you will sell the Euro and buy the dollars.
As the foreign exchange market is a decentralised market, so there is not a centralised authority that controls it. But there are independent bodies that are accountable for the regulation with respect to countries.
In every country, the Financial Conduct Authority (FCA) or Consumer custodian makes sure that all the brokers are registered and licensed and also follow the strict guidelines which shield the interests of traders using their services. All this regulation activity works in favour of traders’ which is ultimately an advantage for the traders.
Now, it is your call whether you want to trade stocks or forex. Take your decision based upon your risk-taking capability and interest. There are a lot of advantages of forex trading, but as we know, there is no trading without risk. So, forex trading is also associated with some risks, but these risks can be avoided by taking precautions. However, we have covered almost all the major benefits of forex trading.