Trading Forex is becoming more and more popular for active traders due to the benefits the Forex offers over other trading instruments. Recent surveys have indicated quite a large movement out of trading traditional share CFDs and into products that are available 24 hours a day like Forex. Let’s take a look at the top 5 reasons why traders love trading Forex and whether you can benefit from this highly active and exciting market.
The Forex markets trade 24 hours a day from when the New Zealand market opens on Monday morning until the US market closes on Friday evening.
You can be trading Forex at any time during this period and because the market never closes it does not gap across your stop when the market opens leaving you with larger losses than you expected.
In fact one of the key reasons traders have made the move from share CFDs to Forex is due to excessive gapping in stocks and getting burned overnight. Whereas the Forex markets tend not to gap or may gap 3-4 times per year on major news items, although these are a rarity.
2. The Forex markets have massive turnover and daily volumes
The Forex market is the largest in the world turning over trillions of dollars each day. According to the Dow Jones Newswires, the Forex markets turn over a staggering $4.71 trillion per day.
This means you can easily buy and sell large quantities if you want and not have any concerns about not getting filled. Execution is subsequently quick and effortless and you will never find yourself waiting around for an order to execute when trading Forex, especially when trading the FX Majors. If you are trading some of the exotics and you are trading size, then you may have to be wary of light volume at certain times of the day.
Another key aspect of daily turnover is understand when the markets are the most active. The London Fix and the New York Fix are by far the most active and the Australian trading session is usually very light, unless a major economic announcement is being released, such as Australian unemployment levels or the RBA cash rate announcement.
3. Trends in the Forex markets are some of the best and trends persist
When a trend develops in Forex it can continue for some time. The Forex market trends more than any other market on the planet, which means you can jump on board a trend and ride it until it ends.
This means that you can develop strategies that deliver bigger wins when you are trading Forex and if your entry point is well designed you can improve your risk to reward on the trade.
Forex markets are the preferred place for savvy traders who have a great appreciate for picking low risk, high reward opportunities, due to the trending nature of this market.
4. With commission free trading everywhere, you could say Forex is cheap as chips
Trading Forex is very low cost due to the fact no brokerage is charged to execute an order. This means you can buy and sell the AUD/USD or the EUR/USD commission free. Having said that, there is a cost of trading Forex and that is the spread, which is the difference between the buy and the sell price for the currency.
When trading the major currencies like the EUR/USD, GBP/USD, AUD/USD or the USD/CHF, this difference is very small and therefore your trading costs are lower when trading this market than any other instrument.
5. The Forex markets let you take advantage of the Power of Leverage
Finally, currencies move a few cents at a time, so to benefit from trading currencies you have access to leverage. This means for a small amount of cash down you can control a large amount of the currency.
You can typically trade a $100,000 position with as little as $1,000 (and often less) in your account. Leverage is a good thing if managed correctly, but can result in large losses if managed poorly. Leverage simple means that you have access to bigger wins and bigger losses and you don’t require the full position size up front in order to control your trade.
It is essential to manage your risk when trading Forex and to trade small whilst you build your trading confidence and work out which style of trading and risk management is best for your situation.
As you can see, the Forex markets provide massive liquidity, limited chance of getting gapped and access to leverage and it stands to reason why traders have made this their preferred trading instrument over the others. In order to get started your best option is to grab a live demo account from a reputable Forex broker and test the waters with fake money. Build your confidence in your systems and then, if appropriate, open a live trading account and start trading small.