The Multiple Advantages to Trade in the FOREX Market vs. Other Markets

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Trading FOREX is a great investment opportunity for traders all around the world. Thus, the FOREX market (or FX market) has become very popular in the last time. The big bucks earned by several folks are an irrefutable proof that it works and it is worth a try. In this article I am going to cover the top advantages of investing in FOREX and make a brief comparison to other markets.

  • Superior Liquidity

This is one of the basic concepts, drawing a difference between FOREX market and other types of markets such as stocks (equity market) and futures. FOREX is characterized by liquidity, by far the most liquid financial market. With transactions summing more than two trillion dollars per day, FOREX market ensures a superior trade execution and price stability for investors. Investors are allowed to open or close transactions easily and the huge amounts of transactions involved in the market make it quite hard to manipulate the prices at a in an extended and uncontrolled manner.

  • Trading on leverage

Compared to other markets, the FOREX market allows trading on leverage and some brokers go up to 400:1. However, the higher the leverage, the riskier the transaction. A 400:1 leverage can lead to a 0.25% in margin of the total investment. Let’s take for example a 100:1 leverage. It means that for US $100k position, the margin needed to open the position is US $1k.

  • 24/24 open market

The FOREX market boasts the advantage that is open twenty-four hours a day everyday, excepting weekends. It opens on Sundays at 3PM EST when the operations begin in New Zeeland and closes on Fridays at 5M EST when the market in San Francisco closes down. Therefore, it allows traders to choose the most convenient time to trade.

  • Specialized trading options

While 85% of all transactions are made in seven major currencies (USD, EUR, GBP, AUD, CAD, JPY, CHF), the liquidity of the FOREX market allows a trader to focus on just a few currency-pairs. One goes for a pair according to their level of knowledge, or to different financial news emerging from the issuing banks and marketplaces. Thus, specialized trading allows a better monitoring of the FOREX market and the acknowledgement of the market tendencies.

  • Low costs per transaction 

Usually, the brokers offer commission-free trading. The spread (meaning the difference between the buy and sell of each currency-pair) is generally the only cost incurred by a transaction. The measurement unit of a spread is the pip, and the spread can be as low as one pip in some currency pairs while in others it can go higher (usually three to five pips).

  • Low minimal investment 

Again compared to other markets such as stocks and futures, the minimum investment is comparable lower. In order to start trading FOREX, one is required less capital – which can go as low as $50 with some brokers, depending on the leverage and the broker’s own policies (you may want to check these forex broker reviews to learn more). This is actually a great benefit for investors looking to minimize the risk and keep it at the lowest levels.

  • Worldwide trading

Not only is the FX market a low-risk investment opportunity if addressed wisely, but it also represents a flexible option. One can trade from virtually anywhere on the globe where an Internet connection is available.

Now let’s see some key-differences between the FOREX market and other kinds of investment options such as the equity market.

tradingadvantage

FOREX market vs. Equity market (Stock market)

In terms of liquidity, the FOREX market (two trillion dollars daily) is way liquid that the equity marked (two hundreds billion dollars per day).

With regards to the trading hours, the FOREX is open 5.5 days a week, and the equity 5 days a week.

The earning potential of FOREX is in both falling and rising markets while equity traders usually take profit in the rising markets.

The transaction costs implied by FX market are low. As previously said, most brokers are dealing on a commission-free policy and low spreads. On the other hand, the costs in the equity market are higher; they suppose both commission and transaction fees.

Leverage: In the FX market, it can go to up 400:1 and in the equity market – 2:1 or 4:1.

Specialization: For FX market, 85% of all transactions are made in seven major currencies (USD, EUR, GBP, AUD, CAD, JPY, CHF) while in the equity market traders can choose from up to 40k stocks.

The futures market

High commission fees, different types of margins for day and night positions, and an inconsistent execution of the operations characterize the futures market.

Conclusion

The FOREX market comes up with a plethora of options and solutions and can prove a very attractive investment tool for traders. Despite the net advantages, this market must be addressed with lot of patience, discipline and commitment. I hold to the belief that the information provided in this article has made prospective traders aware of the benefits and the pitfalls of investing in FOREX.

Good luck!

Published by Kidal Delonix (763 Posts)

Kidal Delonix is a contributor to Mr. Hoffman's blog. The views and opinions are entirely his/her own and may not reflect Mr Hoffman's views.

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