What's So Good About Forex?

Forex trading is becoming increasingly popular with investors, and many are even abandoning the stock market to start trading currencies. For many who don’t know the forex market, this may seem surprising. However, for insiders, it’s no surprise at all – forex trading has a number of unique advantages that make it extremely attractive.

Open around the clock

Unlike stock markets, which are only open for a limited amount of time each day, the forex market is open 24 hours on weekdays. Trading starts off on Monday morning in New Zealand and then follows the sun until the markets close in North America on Friday afternoon. This means that you can trade a currency pair – such as EUR/USD – at any time, not just during office hours when you are at work.

Market size

The forex market is the largest financial market in the world. Every day, more than $5 trillion is traded, creating huge liquidity. This means that no matter whether you have a few thousand dollars or billions, there are always buyers and sellers available to trade with you. Because of the size, this also makes the market very difficult for anyone to manipulate – so all investors have relatively fair trading conditions.

Low trading costs

Whenever you trade, you need to think about how much each trade costs you. Fees, commissions and stamp duties always cut into your profits, so finding a market with low trading costs is essential. In fact, forex trading is probably the most economical financial market from this perspective – making a forex trade is very inexpensive. In large part, this is due to intense competition between forex brokers – many even offer bonuses for opening an account.

High leverage

With forex, a relatively modest amount of capital can go a long way. Forex brokers offer a large amount of margin in comparison to stocks – rather than getting 2:1 margin, you can get up to 50:1 in the US and even higher if you are trading in some other countries. This means that if you have $1,000 in your account, you can open a position with a value of up to $50,000. This magnifies the effect of currency movements, which creates much greater profit opportunities – although it’s essential to manage risk at these margin levels.

Strong trends

One of the best ways to make a profit in any financial market is to spot a trend and follow it. Forex markets generally have very well defined trends that last for extended periods of time. This makes it easier to jump on the trend and make consistent profits over time. The reason for this is that the performance of currencies is tied to the long-term economic performance of a country, which tends to follow a relatively slow cycle. However, it’s important to watch out for disruptive events – for example, the recent move by the Swiss National Bank to uncap the value of the Swiss franc against the euro caught many forex traders by surprise, which led to major losses in some cases.