Forex trading can be defined as the process of trading foreign currency. Usually, to be able to trade in the forex market, one needs to have a Forex broker.
This is because, in forex trading, all procedures of buying and selling foreign currency is usually controlled by brokerage firms.
The forex broker is supposed to assist you in setting up a Forex trading account where you can put your funds to kick start you in trading forex. But why are so many people becoming more and more interested in forex trading? Visit the site to read about that.
In this article, we are going to look at some of the advantages of Forex trading.
Low Transaction Costs
In forex trading, most retail forex brokers are usually compensated for the services offered through spreads. Spreads are normally measured in pips.
Therefore, there are no exchange fees, clearing fees, brokerage fees or government fees that are incurred in forex trading.
Is Not Limited by Hours
Being that the forex market is worldwide, trading becomes a continuous process as long as there is an open market somewhere. You can trade lots for 24 hours 5 days a week. The forex market literally never sleeps.
Liquidity can be described as the ability to quickly convert an asset into cash. Due to the enormous nature of the forex market, high liquidity ensures that large sums of money can be converted into and out of currencies while incurring very small spreads.
Spreads can be defined as the differences between the prices asked for by potential sellers and the bid prices for the potential buyers.
Forex brokers usually allow traders to trade using leverage. Leverage is a situation whereby a trader gets the opportunity to buy and sell using large amount of money than he actually has in his forex trading account.
Although leverage gives the trader the opportunity to make good profits while keeping the capital risk at a minimum, if no proper risk management plan is put into place, the trader can be at risk of making huge losses.
High Potential for Making Profits
The fact that forex trading has got no directional restrictions when it comes to trading helps a trader to sell or buy a currency whenever a position presents itself.
For example, when trading the Singaporean dollar against the US dollar, a trader can opt to buy the currency pair if he thinks it is going to increase and sell it if he thinks it will decrease in value alternatively.
This means that by selling or buying the currency pair, a trader still gets to make a profit.
Offers Free Demo Accounts
If you are a beginner trader looking for an opportunity to hone your trading skills, why not take advantage of the many demo accounts that are offered online by most forex brokers?
These demo accounts alongside charting services and real time forex news come for free. You get an opportunity to practice trading using play money before engaging in real trade using real money.
Fixed Lot Size
As compared to futures markets, there is no fixed lot size in forex trading. This is because, in forex trading, lot or position size is usually determined by the trader.
This gives room for the trader to participate even with an account with as little as $25.
Easy to Start
As discussed above, the lot or position size is usually determined by the trader. This means that you do not have to have loads of money to get started as a currency trader.
This is because, in forex trading, most online forex brokers usually offer both mini and macro forex trading accounts.
Although it is not advisable to open an account with the minimum capital, the fact that it can be done makes forex trading much more accessible especially to those average individuals or beginner traders who do not have a lot of money or capital to start trading forex with.