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3 Benefits of Forex Trading

The forex market is the largest and most accessible financial market in the world. Forex stands for foreign exchange trading or currency trading. It’s a global market, incredibly liquid, with an enormous daily trading volume. Here are some reasons why you should start trading in the Forex Market:

1. Liquidity

A lot of traders are interested in the forex market because of its high liquidity. The forex market is always liquid, meaning positions can be liquidated and stop orders executed with little or no slippage at all. Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In forex, this means we can move huge amounts of money in and out of foreign currency with minimal price movement. The forex market is so enormous, that is why it is also liquid. This is advantageous because it means that under normal market conditions, with a click of a mouse, a trader can instantaneously buy and sell at will.

2.  Accessibility

Forex is the most liquid market in the World. Why? Because there are consistent supply and demand for money. One of the benefits of Forex trading is that the market is open 24/5. This means that traders do not have to adjust their schedule for the market opening hours since the market is open for trade all day long. In normal market conditions, traders can trade out of positions with ease, as there is a near constant supply and demand in the Forex market.  Forex is an over-the-counter market, which means trades don’t take place through a centralised exchange, like shares or indices for example. Forex trading takes place across the globe, around the clock, from Sunday night to Friday night.  The flexibility to trade during U.S., Asian and European markets, with good liquidity in virtually any time of day, is an added bonus to traders whose schedules would otherwise limit their trading activity. As a trader, this gives the opportunity to react to the favourable or unfavourable news by trading right away. The currency market is open 24 hours a day, nearly seven days a week. So, even if there is work during the day, school at night, or getting up early, traders have the time to trade currencies. Plus, different currencies are more active at different times throughout the day, so whenever there is available time, there is bound to be something happening traders can take advantage of. This means that unlike any other financial markets, investors can almost always respond to currency fluctuations caused by economic, political and social events as they occur, without having to wait for markets to open.

3. Leverage

Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. In forex trading, a small deposit can control a much larger total contract value. For example, a forex broker may offer 50-to-1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade with $25,000 dollars and so on. While this is all gravy, let’s remember that leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains. When it comes to trading, the rule of thumb is – the bigger your capital, the larger your trade size. Leverage is an important weapon in the armoury of Forex benefits. Forex brokers may offer traders 100 times leverage, or even more favourable credit terms, for every dollar invested. This can help keep contract costs down and potential profits higher. Traders who only have a small amount of capital can take advantage of this leverage to get more lucrative successful trades.

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