Foreign exchange market advantages
Advantages of trading forex versus other markets:
§ The foreign exchange currency market is extremely liquid.
With average daily turnover of more than 3.2 trillion dollars the forex market has by far the most liquidity of any other market in the world. This provides for virtually no slippage; so the price you see is the price you pay.
§ On-going liquidity, 6 days a week.
Trading is open 24 hours a day 6 days a week in the forex market, this is unlike any other market. Where as stock and futures markets have strict trading times their respective exchanges are open, forex markets allow for trading at any time of day. This provides for more time to test strategies and bigger samples of data to work off of, as well as the ability to take advantage of other countries’ active trading times.
§ No centralized market.
Since foreign exchange trading can be done from right inside your own home there is no centralized trading market. The advantage this provides to the forex trader is that there are no broker’s commissions or fees. Forex brokers, or market makers, collect the difference between the bid and ask price on a currency trade, this is known as the spread. The effect on the trader is that their position will start off being between 1 and 10 pips negative, depending on the volatility of the currency pair being traded. However, for the trader with a consistent and profitable trading method, this small burden is hardly noticeable.
§ It is not possible to lose more money that you put in your account.
Forex market makers generally all offer trading platforms that instantly terminate a client’s open position if they have an open loss that exceeds the margin requirement. This means there is no risk of your account going negative at which point you might actually owe money to the exchange, which can happen in futures trading
§ Low margin requirements allow for leverage.
In forex trading a trader can get leverage up to 400:1 on a micro account. This means they can control 400 times the amount of money at risk on a trade. This is what is known as market leverage and it provides the opportunity for very large profits relative to account size, but also for very large losses.
§ Easily accessible demo account trading.
Almost every single forex broker you will come across offers a free demo account to learn how to trade from. If properly utilized a demo account can educate you on the mechanics of trade execution as well as give you time to develop and test your own personal trading method. A trading method that consistently makes money on a demo account, if traded the same way, should make money on a real account. The difference lies in the fact that real money trading is substantially more emotionally difficult on people. However, if you take the time to test your trading method on a demo account and really take it seriously, the transition to trading real money in the forex market can be relatively seamless.