Forex or Foreign Exchange is the biggest financial market in the world. A lot of various currencies are traded there on a daily basis. Those currencies are paired. You can trade Euro against US dollar in eur/usd (Euro/US dollar) pair, or British Pound against Japanese Yen in gbp/jpy (British Pound/Japanese Yen) pair. Just the fact that Forex is thirty times bigger than US and UK stock markets taken together in terms of daily volume makes it one of the most attractive market for speculators, investors and average traders. Volume is just one factor that is so appealing to those who want to invest. This article will try to cover other benefits and advantages of trading currencies.

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Size also means liquidity

I remember reading one trader’s experience in trading orange juice market years ago. He bought a lot of orange juice contracts and kept buying them as price went up. At some point he decided to lock in the profits and called his broker to ask to sell the contracts. His broker asked:”To whom?” It was very illiquid market. Very few buyers and sellers! The opposite is true about currency market. There are a lot of various participants trading in huge amounts and you can close million dollar contracts within seconds. If you trade such currency pair as eur/usd you can virtually close 20 million position in a few seconds. Sounds unbelievable? It is true.

What is forex leverage? Increase your profit opportunities by means of leverage

Another benefit is that brokers provide traders with possibility to use leverage in trading. Leverage is like a loan for you to trade. If you have one thousand bucks a broker can give you 1:100 leverage which would enable you to operate 100 thousand dollars. It means for every one dollar that is yours the broker will give extra 99 dollars. Whatever extra you make, all profit is yours. For example, 100 thousand dollars is a standard lot in Forex. One pip value (pip – smallest possible price change) is 10 dollars. If price moves in your favor 50 pips, you make 500 bucks. So, having one thousand dollars you can operate with one hundred thousand and quite fast double the amount. Of course, leverage works two ways. You can also lose all of your deposit if you do not use sound money management rules. Opportunity to use leverage enabled me to open 500$ account 9 years ago to start trading currencies. No such possibility did I see in stock market in my country. Possibilities to make bigger money were in Forex. When you find a profitable trading strategy you can actually make yourself a monthly salary with a small initial capital.

The market is open 24 hours per day 5 days per week

This is another nice thing about currency trading. You can live in any part of the world and trade currencies at any time you want. Europe, Russia, USA, Latin American, China, you name it. It does not matter. The market is open around the clock. When I first started investing I did it in my local Lithuanian stock market. It was open from 10.00 am to 2.00 pm. These were pretty inflexible hours for me as I could not monitor what happens in the market, because I studied at the time. With Forex I can do my analysis in the morning hours to spot whether there are any signals on the currency pairs I follow. Then I can sit down at my pc during the day to see whether markets have moved in my anticipated direction. I can prepare for the next day in the evening or even do trades if there is an opportunity. I can also trade at night during Australian session if I cannot fall asleep or want to do a more thorough analysis of my charts.

Possibilities to sell or go short

Forex has always been attractive for those who like short selling. In currencies you can buy a currency, but you can also sell it without buying it first. Some stock markets also have this possibility, but it is often limited with some extra rules which are nonexistent in currencies. If we take eur/usd as an example, you can buy the pair, or you can sell (or short) it. It means that if you buy Euros, you automatically sell US dollars and if you sell Euros, you automatically buy dollars. There is always somebody on the other end of the trade to buy from you or to sell to you, depending on what kind of trade you take. This was absolutely new to me as the stock market in my country was pretty small and it did not have possibility for me to short (sell them without buying them first) stocks. A lot of stock traders limit themselves by only buying stocks. Markets do collapse from time to time and it presents us traders with big opportunities to make profits in falling markets. In Forex, you can go long (buy) or go short (sell) any minute of the day as you see it fit.

Fees that don’t hurt you

In trading stocks you will most likely pay a fee for buying a block of shares and then for selling it. If price is moving fast you might be filled in at different prices and it also means you will have to pay for each position you open. When you want to sell you will have to do the same. If you are day trading you will always have to make much more than you lose as you will have to cover your broker fees to stay profitable. In Forex, you pay broker a spread, which is difference between bid and ask price (buy and sell). Let’s say current quote in eur/usd is 1.3439/1.3441. It means the spread for the pair is 2 pips. If you buy at 1.3439 your broker fills you in at 1.3441 (two pips higher). Price has to go 2 pips up in order for you to break even. No extra fee is taken for closing your position. If the trade goes in your favor you do not even feel this spread fee as it is covered by market move in your direction. As most traders use predefined stop losses (based on percentage) they do not feel the spread fee even if they lose, because they have calculated how much they are willing to lose on a specific trade.