There are many benefits and advantages of trading forex besides it being the easiest way to generate great profits on daily basis.
Here are just a few reasons why so many people are choosing this market:
Spot currency trading eliminates the middlemen and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
No fixed lot size
In the futures markets, lot or contract sizes are determined by the exchanges. A standard size contract for silver futures is 5,000 ounces.
In spot forex, you determine your own lot, or position size. This allows traders to participate with accounts as small as $25 (although we’ll explain later why a $25 account is a bad idea).
Low transaction costs
The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market conditions. For larger transactions, the spread could be as low as 0.07%. Of course, this depends on your leverage and all will be explained later.
A 24-hour market
There is no waiting for the opening bell. From the Monday morning opening in Australia to the afternoon close in New York, the forex market never sleeps.
This is awesome for those who want to trade on a part-time basis because you can choose when you want to trade: morning, noon, night, during breakfast, or in your sleep.
No one can corner the market
The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank or the mighty Chuck Norris himself) can control the market price for an extended period of time.
In forex trading, a small deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum.
For example, a forex broker may offer 50-to-1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade with $25,000 dollars and so on.
This has been implemented July 2018 by the European regulators, and most retail traders started looking for solutions with oldschool Australian brokers with ASIC license.
Because the forex market is so enormous, it is also extremely liquid. This is an advantage because it means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will as there will usually be someone in the market willing to take the other side of your trade.
You are never “stuck” in a trade. You can even set your online trading platform to automatically close your position once your desired profit level (a limit order) has been reached, and/or close a trade if a trade is going against you (a stop loss order).
Low Barriers to Entry
You would think that getting started as a currency trader would cost a ton of money. The fact is, when compared to trading stocks, options or futures, it doesn’t. Online forex brokers offer “mini” and “micro” trading accounts, some with a minimum account deposit of just $100.
We’re not saying you should open an account with the bare minimum, but it does make forex trading much more accessible to the average individual who doesn’t have a lot of start-up trading capital.
Free Stuff Everywhere!
And guess what?! They’re all free!
Demo accounts are very valuable resources for those who are “financially hampered” and would like to hone their trading skills with “play money” before opening a live trading account and risking real money.
Bellow you can see the daily % change of some of the major currency pairs.
When trading Forex, you use Lot sizes to open a position(Buy or Sell) on the market.
1 standard lot = 100,000 currency units
You don’t have 100,000 to trade with?
That’s why you use leverage!
1,000 GBP Account with 1:100 Leverage will boost your purchasing power by 100, so it’s 1,000 x 100 = 100,000 GBP for trading (max).
As you can see the GBP is very volatile and the average daily change is around 0.50% (or 50 pips)
Typically is much more than that, but in this example we want to keep things small.
Here is an example of a typical traders’ account of 1,000 GBP and the maximum lot size different leverages will allow you to open.
Now when you catch a daily movement of 0.50% this is how the leverage can boost your profit:
1:10 Leverage will allow you to open 0.1 lots= profit of 50.00 GBP
1:100 Leverage will allow you to open 1 lot = profit of 500.00 GBP
1:500 Leverage will allow you to open 5 lots= profit of 2500.00 GBP
The GBP/JPY has average daily swing of over 100 pips(1%), which means that if you have an account of 1,000 GBP and catch a 100 pips movement, the profit you make for the day will be almos 1,000 GBP !
1,000 GBP Account catching the daily 1% movement with 1 standard lot = 1,000 GBP profit
Terminology from this article:
LEVERAGE Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have. For example, leverage of 100:1 means you can trade a notional value 100 times greater than the capital in your trading account.*
LOT A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.
PIPS The smallest unit of price for any foreign currency, pips refer to digits added to or subtracted from the fourth decimal place, i.e. 0.0001.
VOLATILITY Referring to active markets that often present trade opportunities.
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