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What Are The Advantages of Trading Forex?

What Are The Advantages of Trading Forex?


What trade Forex?

Traditionally, equity markets or debt markets have been the sole center of attention for most investors and traders around the world. Currency markets have much to offer, over and above the other traditional and upcoming markets such as commodities, it’s not surprising that the volumes in Forex are far above and beyond any other exchange.

  • 1. Non Stop Market (24 Hour Market)

Forex market is a 24 hour market open from Sunday afternoon EST to Friday afternoon EST. In FX markets, traders can decide their own timings to trade. Even those individuals who don’t have time to trade during say, their office hours can trade the – the market is always open. The market is connected electronically so it is easy for buyers and sellers to trade without physically meeting.

  • 2. High Liquidity

Liquidity can be one of the biggest assets for traders; this is perhaps the biggest advantage of forex markets. The forex market is the largest financial market with trade value of over $4 trillions a day.

  • 3. Low Transaction Cost

The forex market is a direct OTC market involving trades directly with the market makers – hence does not involve commission. This means that traders have to pay little or no money to middlemen. Under normal conditions, the retail transaction cost is less than .01%.

  • 4. Interbank Rate

The Forex market is connected through a network of dealers or major commercial banks, which deal only through electronic networks and telephones. The forex market does not have any organized exchange such as the NYSE or the LME.

  • 5. Not easy to manipulate by operators

Forex markets involve large sums of money, which is why it is rather difficult for any trader, operator or market maker to manipulate the market for a sustained period of time.

  • 6. Not Regulated

The forex market is basically not regulated. However, the market makers- commercial banks, etc., are monitored via the relevant rules and regulations in place for them.

  • 7. Hedging, Speculation and Arbitrage

A majority of market participants in forex markets is based on speculative activity, which in turn provides the substantial liquidity available for forex trading. In addition to speculation, hedging and arbitrage are common in the forex market. Banks, institutions, government bodies and jobbers frequently use the forex market to hedge positions in corporate settings (export based businesses). Arbitrageurs are another type of speculative trader who trade on price differential in various currency pairs

  • 8. Highly Leverage

Leverage or Margin makes it possible for a trader to trade in much larger quantities than would be otherwise possible. In the forex market, use of leverage is common and typically brokers provide a tremendous amount of margin to traders.

  • 9. Bull opportunities

When traders shorts one currency, he or she is buying or ‘long’ trading another. This means that there is always an opportunity for bulls to stay active in the market.

  • 10. Market Information

News and information related to currencies is easily available for investors of the Forex market through various online as well as offline sources.

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