Why Trade Forex?

Tuesday, January 13, 2009

Forex Trading Advantages
One of the benefits of forex trading is that the small investors has opportunities that may not be available in other markets, or other forms of investment.

High Yield Forex Trading
FX trading is one of the few businesses where a trader can realise a large fortune starting with a small initial investment. This is because FX trading is highly leveraged, so a small margin can control a large position.
FX markets can show significant price movements, so there is a potential for large profits and losses.

This leverage and price volatility gives you an opportunity to make a high return on your money, or conversely make significant losses. Other pages on this site help you to develop a strategy to maximise profits and to close out losses quickly while they are still manageable.

Reality of online forex trading
The Reality of forex trading is obtaining the fortune mentioned above requires a lot of hard work and it is far from easy, but it can certainly by done by most people who have a passion for trading and are prepared to work hard.

Forex Liquidity
The global FX market is very liquid due to its huge size and turnover. This means that you can easily enter or exit trading positions at the current market price whenever the market is open. The actions of a trader are unlikely to cause any significant impact on such a huge market and there will always be a buyer or seller at the market price.
In an illiquid market, such as low turnover shares, taking or exiting a position may move change market prices. In addition, a counterparty (another buyer or seller) may not be available to allow you to transact.

Openess and transparency
The FX market is also transparent. This means that any information that affects the market prices is available to all market participants. Small FX traders have access to the same information that large institututional traders use. This can again be contrasted with the stock market, where insiders may have access to price sensitive information such as unreleased sales figures not available to other stockholders.

The sheer size of the FX market (turnover of over $1 trillion per day) also means that it can’t be manipulated easily. Whilst large institutional traders or governments can cause small short term price movements, the market is too large and has too many participants for medium or long term prices to be manipulated.

Opportunity to trade long term trends
The FX markets often show long term trends. This means that when trading the forex market, the trader can take positions in the market over longer periods of time and take advantage of large long term movements which can represent significant profits. This is because currency prices movements reflect long term economic conditions. Prices move in trends as traders come to a consensus and buy or sell currencies over a period of months as prices move from one equilibrium point to another. This is certainly a big advantage of currency trading.

Forex Swing Trading
FX Trading offers the opportunity for swing trading. This is where positions are held overnight but generally not for the long term.

FX Day Trading
Trading can also be intraday. FX Intraday trading is where positions are opened and closed on the same day and are not held overnight.
Minor capital requirements
One of the great principles of forex trading is the fact that a trader can open an account with less than $1,000. Since your position is leveraged (that is you transact on margin), you can trade a position of up to $100,000 for every $1,000 of your own money. Some brokers also offer mini-contracts which have a margin of only $100 which allows you to trade a position of $10,000.
This is usually a lot less than the amount required for other investments. We recommend that you invest more than the minimum required as this will allow you to absorb any initial losses.

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