We often hear of people turning to the foreign exchange markets in the pursuit of profits. However while having the potential to earn a high profit is one of the key advantages that currency investors will enjoy, it is not the only one.
Forex trading also provides several other benefits to the individual who is looking to get setup with financial trading. These contribute to ‘the edge’ that dealing on these markets gives traders.
Here are five of the most important advantages the Forex trading offers potential traders when compared to other investment markets which they may be considering trading.
1. Deal With No Fees
With many forms of financial investment you end up paying a fee to the ‘middle man’. This helps cover the cost of your deal being executed in the market. Fees add up over time and can eat into you profits though often, they are not particularly transparent.
Dealing on Forex works differently. You don’t pay a fee on the deal, either when buying or selling. Instead on each deal the broker takes what is essentially a small commission which is known as the spread. This is expressed in pip terms with a typical spread on the EUR/USD being as low as 2 pips.
2. Low Barrier To Entry
Two concepts in foreign exchange trading help to make these markets very accessible. ‘Margin’ and ‘leverage’ mean it is possible to start dealing on the markets with low amounts of capital. In fact with many online Forex brokers you can now start to trade with as little as $100.
These smaller accounts are known as Micro and Mini accounts. They allow you to use small deposits into your trading account to control much large volumes in the live currency markets.
3. Twenty Four Hour Trading
Unlike regional stock markets which have a defined set of trading hours, with Forex you can trade around the clock. The interlinked network of banks and dealing systems make it possible to deal in a currency anywhere in the world, at any time in the trading week.
As a consequence markets can react at anytime to news. This means that a wide range of trading possibilities are on offer for the trader, twenty four hours per day.
4. Level Trading
The twenty four trading that takes place on the global currency markets means that all traders of all Forex strategies, large and small, gain access to the latest news at the same time. There can therefore be no leaks or manipulation of prices favoring the bigger players.
Of course the sheer size of these markets and the volume of daily transactions as a result of the various Forex trading strategies used each day make it difficult to manipulate pricing. This contracts with Stock markets where small caps in particular, can often be subjected to price manipulation.
5. Limit Risk
It would be wrong to assume that there were no risks when dealing on Forex. However when trading on these markets there are a number of tools for Forex available to you with which you can use to limit and manage your risks.
On orders that you place you can setup Stop loss levels and profit targets, while several brokers now offer the facility to make use of ‘guaranteed’ and Trailing stops. These risk management tools can be easily deployed t help you limit your exposure when trading on Forex.