What are the advantages of Forex?
Posted by Homi .M on 17 September 2012 04:34 PM
The forex market is unique in that traders can access a 24-hour market very conveniently, without having to wait for the markets to open. At any time, there is always a major financial center open where banks, hedge funds, corporations, and individual speculators are trading currencies. Traders can trade during anytime of the day or night, and do not have to wait for any markets to be opened before placing their trades. This is particularly beneficial to people who hold nine-to-five jobs since they can trade it without any problems in the evening or night. The market runs 24 hours for 5.5 days a week because markets around the world open and close at different times. In stock or futures markets, you can only actively trade for less than 7 hours a day. World’s Most Liquid MarketAccording to the Central Bank Survey of the forex market conducted by the Bank for International Settlements, as at 2004, daily trading volume reached an all-time record high of $1.9 trillion, up 58% from 2001. Do you know that this humongous daily trading volume is about 20 times that of the New York Stock Exchange and the Nasdaq combined?
With about 80 percent of foreign exchange transactions having a dollar leg, you don’t have to worry about liquidity issues when trading any of the these big-economy currencies, which are namely, USD, GBP, EUR, CHF, JPY, CAD, AUD and NZD. However with stocks, futures, options or commodities, you tend to be restricted by their illiquidity especially during after-hours. Limited SlippageMost brokers guarantee fills on stop-loss and limit orders on up to a certain number of standard lots, and provide instantaneous trade executions from real-time quotes which are displayed on the screen. There is usually no discrepancy between the displayed price and the execution price during normal market conditions. However, you may be subjected to slippage when you trade during news or during periods of high volatility. In the futures and stock markets, execution price can be vague because all orders must be done through the exchange, and slippage and partial fills are common especially in the futures market due to the chaotic open-outcry system. Buy Or Short-Sell AnytimeWhen trading stocks, short-selling is only allowed with an uptick, so it can be very frustrating for traders to wait and see their stocks trend downward, while waiting for an uptick. In the futures market, there is a limit down/limit up rule which kicks in when the contract value declines or increases by more than a certain percentage from the previous day’s close. However, in the forex market, you can short a currency pair anytime without having to wait for any upticks, and this translates to a more efficient and instant order execution. Profit In All Market Conditions With Forex, you can have the freedom to long or short currency pairs whenever the opportunity comes, since there are no exchange-enforced restrictions on daily activities, like for stocks or futures. Flexible LeverageThe Forex market offers the highest leverage available for any market. Leverage is the ability to trade more money on the market than what is actually in the trader's account.The good thing is, it is up to you to select the amount of leverage that you are most comfortable with.
Profit Potential from Rising and Falling Prices
The forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.
Low Transaction Cost
In forex, typically the cost for a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.