Forex is an acronym for Foreign exchange. The Forex trader analyses currency pairs and makes a profit from price fluctuations in the market.
Forex currency trading It is an incredibly liquid market, trading globally $6.6 trillion per day (April 2021) and growing all the time. This liquidity makes it easy to find opportunities for trading.
Forex is the most accessible financial market to get into, but it has a high failure rate for retail traders at 95%. It has a high learning curve for traders. But with perseverance, it is possible to make an income from trading Forex.
There are so many benefits from trading Forex. This article will look at the key components of why Forex such an attractive option for budding and experienced traders alike.
11 Key Benefits of Forex Trading
1. It's Easy to Get Started Trading Forex
Anyone can get started trading Forex. The first step is to open an account with a regulated Forex broker and deposit your funds. Download the trading platform from the broker and start practising. You can also open a demo account to become familiar with trading Forex.
2. You Can Start Trading Forex With Low Capital Investment
With most Forex brokers, you can start trading with a few hundred dollars. If you open a broker account that offers micro-lots, you can trade with $0.10 lots. This option gives you the chance to practice with little monetary investment so you can build up your skills before committing to larger lot sizes.
Read More: Can You Start Trading Forex With Just $100?
3. Forex Has High Liquidity
The Foreign Exchange is the most liquid global financial market. You can select minor or major currencies to trade, and the broker will fill your order. No matter where you are in the world, you can trade forex at any time of the day and know you will find liquidity for your trades.
4. The Forex Market is Open for 24-hours Five Days a week
The Forex market operates globally. It has four different trading sessions across the world, which a trader can access from any country. The great benefit of this is that, even if you are working full-time, you can return home and access Forex trading at any time of day when the market is open.
Trading hours start in the United States when the Australian market opens in Sydney at 5 pm Eastern time. The market closes with the New York session at 5 pm on Friday.
5. The Transaction Fees for Forex are Low
Commission fees for trading Forex are attractive, and the spreads are small. Typically the cost of a Forex transaction is built into the spread.
Choose a non-dealing desk broker rather than a dealing desk broker. The latter directly trades against the retail Forex trader. The former has no conflict of interest, so it can keep transaction costs low.
The only time Forex spreads increase is during trading session crossover times and red flag economic news announcements.
Spreads are measured in pips and may be as small as one or two pips. For example, if the base price of a currency is 1.4450 and the quote price is 1.4452, that is a 2-pip spread
6. Leverage is Available for All Forex Traders
All Forex brokers offer leverage to Forex traders. The amount of leverage available is variable between countries. The United States is 50:1 maximum, and the United Kingdom is 30:1 (April 2021). Some countries offer higher leverage, so it is best to check with your broker what leverage is available.
At 50:1 leverage, it means you can trade $50 for every dollar in your account. If you had $500 in your account, effectively, you could manage $25k from this tiny capital base. That said, for a novice trader, it is best to not rely on leverage, especially with such a small capital base.
7. You Can Make Profit from Small Price Fluctuations in the Forex Market
There are no restrictions on Forex trading. You can choose to buy or sell a currency pair without influence from your broker.
For example, if you traded GBP/JPY and you think the sterling pound is strong, you would buy this currency pair. If you thought the Japanese Yen was stronger, you would sell the currency pair.
Even though you are selling the pair, you are, in effect, buying the Japanese Yen.
You make your profit from the price fluctuations. If the price of GBP/JPY is 1.4450 and you anticipated a price increase, you could set your trade target at, say, 1.4550, at which point your trade closes for a profit.
8. It's Easy to Enter and Exit a Forex Trade
In some financial markets, it is challenging, if not impossible, to exit your trade or investment once you have committed funds to it. Not so with Forex. You can hit the buy or sell button and instantly have a Forex trade open in the market. Because of the high liquidity, your order is accepted immediately by the broker.
If you've made a mistake or decide the trade isn't working out, you can exit the trade as quickly as you entered. This freedom to control your trades is a huge benefit. It is more challenging to exit a trade in other financial markets like ETFs, Futures or Stocks.
You never own the currency. You are purely trading it for a short period.
Read more: Top Forex Trading Tips
9. You Can Choose Your Trading Style
There are three styles of trading in Forex, and you can stick with one or switch around as you like –
- Scalping – you enter and exit the Forex market for a few pips profit – usually on the 1-minute, 5-minute or 15-minute charts. Scalpers take multiple trades per day
- Day Trading – you take more significant moves but aim to complete a trade by the close of the day. Typically, you will trade on the 30-minute or 1-hour charts and take a few trades a day
- Swing Trading – Swing traders wait for the long-term moves in the market. They may have a target of 200 pips or more, sometimes several hundred pips. Swing traders may only take one or two trades a week or a few each month. They will hold onto trades to capture the most profit
Your trading style will depend on your personality and how much time you spend on the charts.
10. There are Multiple Strategies to Choose For Trading Forex
There are hundreds of strategies, indicators and tools available for the Forex trader to test. You can adapt your strategy to your trading personality and add or remove anything not working for you.
At first, it may not seem like a benefit as you won't know what strategy to work with or which indicators you will take. It's a process of elimination. Some strategies you will love from the start. Others may leave you feeling baffled, and you'll get rid of them straight away.
11. Recap of the Benefits of Trading Forex
The Forex trader has a lot of freedom. They can trade the currencies they like. They can choose how often they trade and when to trade. There are no limits other than how much capital you have and how experienced you are.
You can get started trading Forex with a few hundred dollars and trade with micro-lots, which is a significant benefit compared to other financial markets.
You can trade Forex with a demo account until you are confident to trade Forex with real money. You can choose your trading style and shift to another style if you wish.
You have multiple choices for strategies, indicators and tools. In time, you'll figure out what you prefer, and it will become your Forex trading template.
Trading Forex is not easy, and it's not for the faint-hearted. But, of all the financial instruments, the benefits outweigh the benefits of other financial markets.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading or investing in financial instruments such as Forex may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.
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