Foreign exchange offers numerous advantages over the traditional stock market. The purpose of this section is to review the specifics of Forex trading.
Full time trading is an advantage that will appeal to a lot of people! Because of its very nature, Forex is an international market that is not centralized on a single exchange location. This means that you can trade currencies 24 hours a day from Monday to Friday.
The continuous trading ability meets the requirements of professional traders, as well as casual traders who simply want to make a few trades at the end of their work day.
Forex was once the privilege of very large banks or investors. It was indeed impossible to enter the market with less than $ 10.000.000 to invest!
The mass influx of online brokers has wholly changed the dynamics of this market. Brokers offer much higher leverages than the banks and most importantly, they have completely erased transaction costs linked to trading. The only remuneration that the broker receives is the spread (link definition). Online brokers even offer you a downloadable trading platform completely free of charge. All that is required of you, is to sit comfortably in your living room with your laptop and an internet connection!
With daily exchanges worth 3.5 trillion Dollars, the Forex market is known for being the most liquid market in the world. In comparison, this is far larger than the traditional stock exchange!
If you are active on the stock market, you most certainly have encountered a situation where you wanted to buy a number of shares, but there was simply no counterpart to sell them to. You haven’t been able to execute your transaction and the direct result is a missed profit opportunity. Nothing is more frustrating than spotting a great trading opening and not be able to take advantage of it due to a lack of liquidity!
You can be rest assured that you will never find yourself in this maddening situation with the Forex market!
In addition, the currency market is very volatile. The rates constantly vary upward than downward, allowing you to make small regular operations of short duration without exposing yourself to too much risk.
The Forex market is much healthier than equity because it cannot be manipulated. If you opt for a medium term approach, you will make decisions based on the macroeconomic environment. Factors such as interest rates, sovereign debt or unemployment rates are public data that cannot be concealed or influenced. Conversely, with regards to the stock market, even after a thorough analysis of a company, any announcement of the management can turn everything upside down overnight and have a disastrous effect on your investment.
If you are not yet convinced of the Forex market’s potential, here is something that should convince you!
Of course, if you buy EUR/USD and its price goes up, you will make a profit. The principle is the same as if you had bought shares of a company whose value has increased.
Amazingly, on the Forex market you can also make profit with the opposite scenario! If you think the Euro is over rated against the Dollar and that the price of the Euro will decrease in the near future, you can speculate on the downtrend of the EUR/USD and consequently make a profit when the price does go down.
This notion is very important because it translates into the ability to make profits in all market conditions. On the regular equity market, you lose 50% of money making opportunities because you can only do so if market goes up.
FOREX IS A MARKET THAT KNOWS NO CRISIS!