Forex trading, also known as forex exchange or just forex (FX), is the exchange of one currency for another with the aim of generating profits. The forex market values at approximately $2.4 quadrillion and a daily turnover of $6.6 trillion, making it the world’s largest financial market. As a global market, currency trading is carried out everywhere around the world. This explains the vast daily trading volume and high liquidity supported by the market.
Generally, trading forex is quite a profitable endeavor, especially if you are an experienced trader. However, whether you are a novice or a skilled trader, there is a myriad of reasons why forex exchange is a worthwhile investment.
This article discusses the various benefits of trading currencies
Largest Financial Marketplace Globally
At the top of the advantages of trading currencies is the immense scale and size of the forex market. Traders from across the world are actively involved in the buying and selling of currencies within this market, with their daily transactions accounting for over $6.6 trillion in value. This is according to the Triennial Central Bank Survey of 2019 on foreign exchange turnover. Notably, the trading volumes experienced in the currency exchange market exceed the stock market by significantly large proportions. In effect, the foreign exchange market is the sole most accessible marketplace globally.
Liquid markets are generally characterised by vigorous trading with no or limited impact on the value of the transacted assets. Compared to other markets, the currency exchange market has the highest level of liquidity. This is attributed to the innumerable participants, flexibility, and trading volumes that define the forex marketplace. This means that transactions can be initiated and completed efficiently and quickly with minimal variation in the market prices and at low transaction costs. Therefore, when dealing with major currency pairs like EUR/GBP or GBP/USD, money can be moved into and out of your assets within tighter spreads.
While minimal price variations may imply low profits, high liquidity in forex allows you to buy or sell currencies with minimum risk. Also, the liquidity of forex tends to decline you are trading exotic or minor currency pairs. However, this happens to allow for increased return on investment through high-profit margin.
Profit Potential from Price Movements
Directional trading is one of the most popular currency trading strategies, allowing forex traders to make profits from falling or rising currency prices. This means that you can go long (buy) or short (sell) when you project an increase or decrease in the value of currency pairs, respectively.
As a forex trader, you will always be buying or selling one currency against another. For example, you will go long if you predict a rise in the value of the base currency against the quote currency. Alternatively, you will go short when you project a fall in the value of the base currency against the quote currency.
In the trading stocks marketplace, the concept of directional forex trading is only cost-effective when you have large amounts of investments. This is particularly due to the high transaction rates associated with the market. For forex exchange traders, however, directional trades are made easy and possible as per the market trends.
The Leverage Benefit
Leverage in forex is probably the most exciting advantage for traders. With leverage, you can open a high trading position with little trading capital. Typically, forex brokers allow retail traders to borrow funds as a ratio against their capital to increase their potential returns. Interestingly, leverage can go to as high as 1:100 and sometimes even higher. In this case, you can open a position of up to $100 for every $1 in your trading account. Therefore, with $500, you can control a trade of up to $50,000.
While leverage increases your potential for high returns on investments, it also bears the risk of massive losses. The negative implication of leverage is that you can incur losses greater than your initial deposits. Fundamentally, you should be familiar with the risks of trading with leverage before diving into it.
The limitless trading hours of the currency market are another primary benefit of trading currencies. Ideally, currency exchange is facilitated through an Over the Counter market where the trading parties complete transactions through a broker. Therefore, trading continues throughout the day and night, provided there is an open market around the world.
Trading starts on Sunday, 5 pm (Eastern Time), until Friday, 4 pm (Eastern Time). During this period of time, a minimum of one market is open. During the opening and closing of business for such zones as New York and London, the market experiences an overlap of trading sessions. The spot and forward foreign exchange rate, also known as the Reuters/WMR, is determined at this point. The rate is used for daily pricing and valuation, especially for pension funds and money managers.
Suitability to Every Trader
The currency exchange market is the most accessible market, considering the low investment and transaction requirements that come with opening a forex account. This is one reason why there are more trading careers with forex than it is with other markets. However, that does not take away the fact that skill and knowledge are critical for successful trading.
The good news is that there are free demo trading accounts that enhance your trading skills with zero risks. The demo account simulates an actual trading environment to get you acquainted with trading dynamics. It is the ideal way to familiarize yourself with trading tools and such methodologies as fundamental and technical analysis without financial commitment.
The forex market has been quite radical in adapting to the technological developments witnessed with the trading industry. As a decentralised market, networking and connectivity are crucial components to the reality of foreign exchange trading. Consequently, software developers and engineers continue to develop and improve solutions that make trading easy for every trader.
Today, more reliable and advanced online trading platforms offer traders a wide array of trading tools and resources. With a click of a button, you can access multiple trading opportunities on mobile, desktop, or tablet.
Why Trade Forex
Stock traders are limited on the amount of time they are up for forex trades and the trading volumes they have access to in a trading day. On the other hand, foreign exchange traders have access to the largest financial marketplace, directional and margin trading advantage, and high asset liquidity for 24 hours. With the right forex trading strategies, traders in forex can earn high returns with minimal initial capital. However, before committing your financial investment to forex, it is essential that you undertake extensive research to familiarize yourself with the benefits and drawbacks of the market.
Discover Forex Trading with Tixee
Looking for a reliable online brokerage company? Check out with Tixee for your trading account and trading needs. At Tixee, we offer you a vast wealth of tools and resources to help you execute a trade with minimal risk. We also provide you with trading signals to keep you informed on when to trade forex pairs without incurring any cost.
Join us today and get yourself started with currency trading. Opening a Tixee account is simple and straightforward. You can also trade risk-free by signing up for our free Tixee Demo Account.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.