The Forex (Foreign exchange) market is the largest financial market in the world where trillions of dollars are traded every day. Millions of traders from all over the world are associated with this Forex market. The volume of forex trading and traders are constantly increasing every year.
The reason for the continuous growth in forex trading is the benefits of forex trading . An investor can start forex trading with a small amount of capital. The transaction cost is also much lower. There are leverage facilities for traders. Due to these reasons, the interest of general investors towards the Forex market is increasing.
Benefits of Forex Trading
1. You Can Take Advantage of Go Long or Go Short
We know that in the Forex market an investor sells one currency and buys another. The currency that is sold is called quote currency and the currency that is bought is called the base currency. When two currencies are exchanged, those two currencies are called pairs.
When an investor sees that the base currency is depreciating against the quote currency, he wants to buy this pair (going long). When he sees that the value of the quote currency is likely to decrease compared to the base currency, he tends to sell that pair (going short). Investors can make a profit if their prediction is right and there is a possibility of loss if the prediction is not right. So before predicting about the price of pair investors must analyze current market position.
2. High Liquidity
The Forex market is a gigantic market. The scope of this market is worldwide. Billions of dollars are traded in this market every day. Countless buyers and sellers are exchanging currencies every moment. There is no shortage of currency and investors in this market. That means high volume and liquidity.
If you want to trade in the Forex market, you will explore a huge volume of currency pairs in front of you. Just one click is enough to complete your transaction. However, as the liquidity in this market is high, so is the volatility. So you must be careful while buying and selling currencies.
Related Article: What is the Forex Market and How Does It Work?
3. Forex Trading Open to All
If you want to invest in stocks or bonds, you need to start with a good amount of capital. But, the Forex market is not just for big fish, a small investor who has a small amount of money can also invest in this market. As a result, a huge number of traders are being added to this market.
You can start investing in the forex market for only $500. Many companies will offer you leverage.
The amount of leverage you get will depend on your deposit. For $500 deposit you can get a leverage of $1,000 to $2,000.
Be careful when taking leverage as it will augment your liability. Again, leverage will be a blessing for you if you make the right investment decision.
4. 24 Hours Trading Opportunity
This is a great opportunity for traders. Because without the Forex market, you will not find any market where there is an opportunity to trade 24 hours a day. The Forex market will give you that unique advantage.
The Forex market is open 5 days a week and 24 hours a day. Trading takes place every week from 5pm EST on Sunday to 5pm EST on Friday. Due to different time zones, there may be a difference of a few hours between the opening and closing of the market.
You may remember that the Forex market is closed on Saturdays and Sundays. But the fact is not like this. These two days the market is closed for retail investors, but open for the central bank and other relevant business organizations. Therefore, you may see a different price range in Sunday night.
5. Low Transaction Cost
Another advantage of Forex trading is that its transaction costs are much lower than stock or options transactions. You can start trading in the Forex market at a very low cost.
However, there are some optional costs such as news services, market analysis reports and faster connections.
You will have to pay a certain amount of cost or commission for each transaction. Each broker charges differently. These costs are borne by the trader to carry out the transaction process.
The most common cost of forex transactions is the spread and commission fees charged by the broker. Spread is the difference between bid price and ask price. The spread is usually very low so there is nothing to worry about.
6. You Can Boost Your Income Through Leverage
Leverage is one of the biggest advantages of Forex trading. Leverage will boost your transaction capacity.
You need to open a broker account for forex trading. Then you have to put down a deposit as per the terms of that broker. This broker will offer you leverage against that deposit. As a result, you can go beyond your capacity and can control a much higher stake,
Leverage is usually expressed in ratios; most brokers set a maximum level of leverage such as 1:30 or 1:50. Suppose you take advantage of 1:30 which means you will get a leverage of $30 for every dollar you have in your account.
7. Huge Volume of Currency Pairs
Another advantage of forex trading is that a trader can invest in a wide range of currency pairs. There are many currency pairs are available for traders, e.g.
Major currency Pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD and NZD/USD।
Minor pairs: USD/ZAR, SGB/JPY, CAD/CHF
Some cross currency: EUR / GBP, EUR / CHF, and EUR / JPY.
Exotic currency pairs: USD / PLN, GBP / MXN and EUR / CZK.
8. Demo-Account Facility
Brokers offer Demo-account facility for foreign currency traders to savor the flavors of Forex market. This account is completely fee and you do not have to comply with any conditions before handling it.
The Demo-account facility is mainly provided to scale up your skills. The thing is that you are playing some practice matches before the start of the real match. Practice matches help you adapt to the real situation and improve your skills.
Demo-account will also help you to adapt to the real situation in forex market and develop your dexterity. Since it is a demo-account, you do not have any risk.
9. You Can Trade From Anywhere in the World
Forex Market is a decentralized or over the counter market where you can trade foreign currencies from anywhere in the world. You can participate in forex trades through phone and electronic communication networks (ECNs).
Since you can take part in trades from anywhere in the world, you can also take advantage of time zone differences.
I hope you got a good idea about the benefits of forex trading after reading this article. But despite all these advantages, the risks of this market should not be forgotten. The forex market is highly volatile; prices can fluctuate at any time. So I would suggest that before entering the forex market you must research this market and know the forex trading strategies well.