Getting started with forex trading is a big decision. It is the biggest financial market in the world, bringing in traders from all over the world. However, it also comes with a higher risk. If you do not possess the skills required, you could lose your trading capital in seconds. Therefore, you need to be ready and know the answer to the question, “Why should you trade forex?” In this article, we will give you five advantages you can avail of if you trade forex.
Benefits of Forex Trading
1. Reduced margin
“You need a lot of money to open a trade” – a common myth among traders. However, what traders do not know is that forex allows you to trade with a lower margin. This means that you could open a big trade even if you have a small capital investment. It is possible because of leverage.
A type of loan given to you by your broker- leverage allows forex traders to open a position that is X times bigger than their capital investment. So if you take on a leverage ratio of 1:10, you could open a position of $100 with an investment of $10. However, leverage also has a downside: it can increase your risk X times if you don’t know how to properly trade with leverage.To avoid the risk of leveraged trading, always trade with leverage that you can handle. You could use trading tools like the margin calculator and leverage calculator to find the exact margin required based on the leverage provided by the broker. These tools can be really helpful because you will get accurate values to place trades more smartly.
2. Increased Liquidity
One of the top reasons why forex gets a lot of traction is because of its high liquidity. It is the only financial market that has a daily trading volume of $6.5 trillion, which keeps getting higher every year. Every country, from state banks to financial institutions, is involved in forex, resulting in a high volume of transactions. Since a lot of money moves in and out, there is an opportunity for you to make an income by executing successful trades.
Here’s how you can benefit from this increased liquidity of the forex market –
- Ease of entry and exit – You can enter and exit your trades easily in the market because of the high liquidity. The chances of significant slippage from sudden price movements are low when there is enough liquidity. Hence you get a better trading experience in a swift trading environment. Moreover, you could expect a stable market as a result of this liquidity. So you could trade and make profits without any sudden or unexpected price movements.
- Smooth execution of orders – Getting your orders executed on time is the real problem for traders. However, in forex, your orders get executed at your desired prices, avoiding any delay.
- Availability of tighter spreads- A market that is highly liquid offers tight spreads to traders. Therefore, the chances of slippage are reduced, and you can execute your trades consistently at your desired prices.
3. Direct Trading
Unlike other financial markets, the forex market doesn’t have a centralized exchange. This gives you greater transparency, as you do not have to wait for any third party to grant an exchange between two parties – buyers and sellers. Moreover, because of the absence of a central exchange, transactions happen quickly. But it also demands precision from your end.
You not only need to be thorough with your trading skills but also know at what prices you should buy or sell your currency pairs. This requires you to stay updated with the current exchange price. Although this feature is built into trading platforms, you could use a currency converter. It works by converting one currency to another at real-time prices. So, if you are trading EUR/USD and want to know the amount of EUR you will get for the USD you have, then you will require a currency converter for accurate calculation.
4. Anytime Trading
“I don’t have the time” is a common
excuse people give when you suggest that they trade forex. Although financial markets require time, especially stocks that have fixed timings, forex doesn’t tune in the same way. You can engage in forex trading anytime you would like to, depending on your flexibility. It is open 24 hours a day, 5 days a week, starting on Mondays and closing on Fridays.
So even if you are working full-time, you could trade after your office hours. Most new traders start as part-time forex traders. Not only does part-time trading provide them with a secondary source of income, but it also gives them time to build their skills. Moreover, trading in the digital world is a breeze today.
You could open your trade from your smartphone today, as most brokers provide you with apps. You can even keep track of your trades whenever you have time or are on a break. If you want to open a new trade, you should check trading calculators before doing so. By providing you with the potential profit or loss you could make on a trade, they will help you plan your trades carefully.
5. Low Trading cost
What’s a common misconception that people have about trading? It is a costly affair. Forex indeed requires some level of investment from you, but it is not as costly as other markets. It does not charge you any of these fees -, clearing, government, or exchange. Most brokers base their charges on the spreads offered. You can even open commission-free accounts if the broker provides this option. However, the pricing structure could vary from broker to broker. So you should check out the trading accounts offered by the brokers and choose which you find the most useful. Pricing models offered by forex brokers can benefit you in the following ways –
- Cost-effective – As you are not paying any exchange fees, it makes your trading less expensive. You only have to pay for spreads, which brokers offer at relatively low prices. Moreover, spreads are a transparent trading condition available on the websites of all brokers. If you pick a platform that offers lower spreads, the lower will be your trading costs. So you can compare it on different websites and choose a broker that fits your budget.
- There is no conflict with your broker – Finding a reliable forex broker is a hustle for traders. However, with spreads being crystal clear, you don’t have to tussle with your broker over prices. Because of the transparency of the spreads, there is less room left for conflict. However, do ask your broker if there are any “hidden fees” involved to avoid confusion.
Final Thoughts
If you look at the points we discussed above, you will know that forex trading offers you plenty of benefits. Because of its high liquidity, you would have many trading opportunities to make profits. However, you should know that there is risk in trading. You should be trading only after you have acquired the skills of forex analysis, risk management, trading psychology, etc. To achieve the desired level of competency, you should open a demo trading account, build a strategy, and test it.
