|
Access to foreign exchange (forex), the most extensive
market on the planet, is generally through an intermediary
known as a forex broker. Similar to a stock broker, these
agents can also provide advice on forex trading
strategies. This advice to clients often extends to
technical analysis and research approaches designed to
improve client forex trading performance.
Financial institutions are generally the most
influential in the forex market through high-volume,
large-value forex currency transactions. Historically,
banks enjoyed monopolistic access to the forex markets,
but through the Internet, any forex speculator can also
enjoy 24 hour access to the market via a forex broker.
Secure web connections today allow many forex traders
to work from home, where ready access to news and other
technical advice informs decisions on what forex positions
to take. Similar moves are being made by stock brokers,
who are also moving out of banks and other traditional
institutions.
Your needs in the market will influence your choice of
forex broker. Online forex brokerage firms, known as
houses, provide those new to the forex market with
detailed research, advice and simulators to learn how to
use their forex trading tools. The experienced online
forex trader is catered to by other broking houses, with
in-depth advice, but less focus on forex trading
instruction based on the assumption that you are familiar
with the forex market. To make an informed choice, it is
advisable to trial several differing online forex broking
houses and their trading tools to find the best fit for
your needs.
Trading the Forex market has become very popular in the
last years. Why is it that traders around the world see
the Forex market as an investment opportunity? We will try
to answer this question in this article. Also we will
discuss come differences between the Forex market, the
stocks market and the futures market.
Some of the benefits of trading the Forex market are:
Superior liquidity.
Liquidity is what really makes the Forex market
different from other markets. The Forex market is by far
the most liquid financial market in the world with nearly
2 trillion dollars traded everyday. This ensures price
stability and better trade execution. Allowing traders to
open and close transactions with ease. Also such a
tremendous volume makes it hard to manipulate the market
in an extended manner.
24hr Market.
This one is also one of the greatest advantages of
trading Forex. It is an around the click market, the
market opens on Sunday at 3:00 pm EST when New Zealand
begins operations, and closes on Friday at 5:00 pm EST
when San Francisco terminates operations. There are
transactions in practically every time zone, allowing
active traders to choose at what time to trade.
Leverage trading.
Trading the Forex Market offers a greater buying power
than many other markets. Some Forex brokers offer leverage
up to 400:1, allowing traders to have only 0.25% in margin
of the total investment. For instance, a trader using
100:1 means that to have a US$100,000 position, only
US$1,000 are needed on margin to be able to open that
position.
Low Transaction costs.
Almost all brokers offer commission free trading. The
only cost traders incur in any transaction is the spread
(difference between the buy and sell price of each
currency pair). This spread could be as low as 1 pip (the
minimum increment in any currency pair) in some pairs.
Low minimum investment.
The Forex market requires less capital to start trading
than any other markets. The initial investment could go as
low as $300 USD, depending on leverage offered by the
broker. This is a great advantage since Forex traders are
able to keep their risk investment to the lowest level.
Specialized trading.
The liquidity of the market allows us to focus on just
a few instruments (or currency pairs) as our main
investments (85% of all trading transactions are made on
the seven major currencies). Allowing us to monitor, and
at the end get to know each instrument better.
Trading from anywhere.
If you do a lot of traveling, you can trade from
anywhere in the world just having an internet connection.
Some of the most important differences between the
Forex market and other markets are explained below.
Forex market vs. Equity markets
Liquidity
FX market: Near two trillion dollars of daily volume.
Equity market: Around 200 billion on a daily basis.
Trading hours
FX market: 24hr market, 5.5 days a week.
Equity market: Monday through Friday from 8:30 EST to
5:00 EST.
Profit potential
FX market: In both, rising and falling markets.
Equity market: Most traders/investor profit only from
rising markets.
Transaction costs
FX market: Commission free and tight spreads.
Equity market: High Commissions and transaction fees.
Buying power
FX market: Leverage up to 400:1.
Equity market: Leverage from 2:1 to 4:1.
Specialization
FX market: most volume (85%) is made on major
currencies (USD, EUR, JPY, GBP, CHF, CAD and AUD.)
Equity market: More than 40,000 stocks to choose from.
Forex market vs. Futures market
Liquidity
FX Market: Near two trillion dollars of daily volume.
Futures market: Around 400 billion dollars on a daily
basis.
Transaction costs
FX market: Commission free and tight spreads.
Futures market: High commissions fees.
Margin
FX market: Fixed rate of margin on every position.
Futures market: Different levels of margin on overnight
positions than day time positions.
Trade execution
FX market: Instantaneous execution.
Futures market: Inconsistent execution.
All this makes the Forex market very attractive to
investors and traders. But I need to make something clear,
although the benefits of trading the Forex market are
notorious; it is still difficult to make a successful
career trading the Forex market. It requires a lot of
education, discipline, commitment and patience, as any
other market.
|
