Forex trading has a number of advantages over other financial markets, the most important of which are: liquidity, 24-hour market, leverage, low transaction costs, small investments, specialized operations and operations from anywhere in the world.
1- Work 24 hours a day
The Forex market works efficiently 24 hours a day. Somewhere in the world, at 6 pm or 6 am, there are buyers and sellers who trade currencies continuously. FOREX (FX) traders can always react instantly to the latest news and, unlike the stock market, profits or losses are not affected by reports on profits or losses announced after the market close, by telephone conferences with analysts or by a decline in trading due to “pending news or announcements.
2- Increase in liquidity
With a daily trading volume 50 times higher than that of the New York Stock Exchange, there are always brokers and brokers (I will explain later that you are a broker) who want to buy or sell currencies in the Forex market. The liquidity of the currency market, especially the major currencies, helps to ensure price stability. Traders can almost always open or close a position at a fair market price. This is a great advantage of the Forex market.
Because of the low trading volume, investors in stock exchanges and other listed markets are more vulnerable to liquidity risk, which leads to increased spreads or more noticeable price fluctuations in response to any relatively large trades.
3 -Leverage 3-400:1 on the Forex market
Later I will explain in detail what leverage is, but if you had leverage of 1:400, it would mean that if you had an account with 1,000 euros, you would actually speculate as if you had 400,000 euros. This means that we can make money as if we had 400,000 €, but in case of losses, it would be limited to 1000 €, which we originally invested.
Later I will dedicate a separate chapter to explain exactly what leverage is.
4- Minimum risk capital
The Forex market requires less risk capital than other markets. Some brokers also allow you to open accounts for $1 (yes, yes, you read on the right, only $1). On average, the minimum investment is usually 300 USD.
Of course, we can not expect to make a fortune with this capital, but it will certainly help us to enter the market without risking large amounts of money.
5- Specialized operations
The liquidity of the market allows us to specialize in only a few currencies. About 85% of transactions are made in the seven major currencies mentioned above. This allows us to follow in detail the economic news, which will help us to predict the evolution of the markets.
6- Low transaction costs
The FX market is considered to be one of the financial markets with the lowest operating costs. Most brokers charge fees according to the following two systems:
Spread – Brokers charge a different price for buying and selling, this difference is what a broker is.
Spread and commissions – Most brokers in this system charge commissions, but the difference is generally so small that even the transaction costs can be lower than for brokers who only charge spreads.
7- Equal profit potential in upstream and downstream markets
In every open position on the Forex market, you have a long position in one currency and a short position in another (later I will explain in detail how it is when you go long or short in one currency). A short position is a position in which the trader sells a currency before it depreciates. In this case, the trader benefits from a reduction in the market price.
8- Negotiate from anywhere
The fact that transactions do not have a physical place where everything happens allows us to trade anywhere in the world. All we need is an internet connection where we can access a broker.
Finally, in this section, I will give you two comparison charts that will help you understand the advantages of Forex over other types of trading.