Forex is a global financial market that is incredibly liquid, with an immense daily trading volume. Some day traders make trades in the hundreds or thousands that can yield millions of dollars in one day. As with most money markets, Forex isn’t a sphere where beginners can dominate the sector.
It may take an inexperienced trader months, years, as much as years towards becoming a master in the market. These aspects of the industry may scare some prospective traders who are starting out in finance, but what I’m about to describe are the wonderful benefits that can come from exceptional trades in the Forex market. Below are only some of the amazing benefits of trading within the Forex market.
The Market Runs Around the Clock, 24/7
Forex is a global market that constantly updates 24 hours a day. It is easy to find a Forex market in almost any advanced society on the planet, and you’ll be able to find updated trends at any hour of the day.
The markets may open in Australia on Sunday evening and end after the market closes on Friday, but between that time frame, any currency is fair game. Some markets within finance are only open during certain hours of the day during weekdays, which might give less time for traders to figure out how they believe the markets will trend and make an informed decision to buy or sell.
With the market always open during the week, Forex traders are given enough time to know which markets they want to invest in and maximize their investments. The benefit of the market almost always being open is extremely valuable to traders.
Forex is a Highly Liquid Market
Liquidity is the ability of an asset to be converted into cash, without a price discount. The reason why federal reserve notes, or dollars in the United States, are so liquid is because they can be used directly in the marketplace.
An antique piece of furniture is at the other end of the liquidity spectrum because it is much harder to find a seller that may want to purchase it at a price level the seller measures its worth. Because Forex is the market for buying and selling foreign currencies, the stock that is invested is extremely liquid; in fact, there isn’t a more liquid stock than the money being traded itself.
Foreign exchange allows investors to move large amounts of money into and out of foreign currency with minimal price movement. Because of the usual smaller trends in the Forex market, traders are able to make investments knowing there will be little price movements in the near future. High liquidity of the Forex market makes the stock traded easy to use in the marketplace.
Low Transaction Costs
Transaction costs are usually associated with a small fee or surcharge that is linked to an individual trade. Sometimes brokerage firms charge transaction fees in order to process desired trades, which may be small or large which is specific to the individual buy or sell.
Typically in Forex, the cost of a transaction is built into the price of a certain trade or currency. For certain traders, making a small buy in the market may not be maximizing their investment power if the transaction cost is equal to the amount of money they are investing into a certain market.
The transaction cost is usually known as the “spread.” The Spread is the difference between the buying and selling price. The higher the spread, the higher the transaction cost and vice versa. It may not be worth it to make certain trades if the transaction cost, or the spread, is higher than what you are comfortable with. Paying attention to the transaction costs is an important variable when investing in Forex.
Importance of Leverage
Leverage is the ability to trade more money on the market than what is actually in a trader’s account to invest with. Forex brokers allow traders to trade in the market using leverage, which can be a great tool to use if used correctly, or a horrible tactic if used incorrectly. For example, if you traded a stock at 50:1 leverage, you could trade $50 in the market for every $1 that was in your account. Essentially, you could control a trade of $50,000 using only $1,000 of capital.
As previously mentioned, after conducting research and testing the market trends, leverage can boost your profits from trades. However, offering much more money than you have to offer and losing money off a trade can put an investor in huge amounts of debt. Leverage is an amazing tool that can make a career in Forex, as long as it is being used correctly and effectively.
Profit Potential From Rising and Falling Prices
The Forex market doesn’t have restrictions for directional trading. In other terms, if you think a currency pair is going to increase in value, you can buy it or go long with it. Conversely, if you think the currency might decrease in value, (which is also valuable information), instead you can sell it or what is known as shorting the stock.
Basically, there are no restrictions into what currency you wish to invest in and the habits you take when investing. Without much regulation of the market, investors are able to act much more freely and use the market to their advantage.
Many investors in any financial market have the potential to make millions, or billions of dollars in financial markets. However, those profits aren’t made in one day, week, or month. Investors used advantages they found in the market over time in order to make more money. Also known as benefits, the Forex market allows investors to make more money than other markets with the help of some advantages of the sector.
First, the 24-hour window of the market; Although the market is only open on weekdays, the market is open for the entirety of that week, giving traders enough time to make informed decisions to buy or sell. The high liquidity of the Forex market allows the stock that is being traded to be used easily and directly back into the marketplace, rather than trying to buy a car with stock of a company.
When making trades in the Forex market, more often than not the transaction costs are low. With low transaction costs, there is more money available to invest in other currencies or other markets. Leverage is a tool used specifically in Forex and can reap incredible profits for an investor. Lastly, there is potential profit from both the rising and falling or prices in the Forex market.
Riding out a positive trend in the market or shorting a currency you know will depreciate in value will allow investors to maximize their investments. There are many benefits when trading in Forex, possibly more than any other financial market.