10 Reasons to Trade Forex
Dear Friends/Fellow Traders,
Thank you for checking back! I'm really excited (and nervous...) about writing the second post of my newly-launched blog; I hope the information that I will be sharing with you all in the many days to come will be exceeding your expectations.
Today I will talk about all the reasons why you should be trading forex (if you aren't doing so already). To keep this from being a multi-page essay, I will only state the top 10 reasons (I'm pretty sure you'll find many many more as you progress and grow as a forex trader):
(1) The FX (An even shorter abbreviation for Foreign Exchange) Market is the biggest financial market in the world, with over US$2 trillion traded daily. In contrast, the NYSE only trades about US$50 billion every day. That's over 40 times the daily volume of the NYSE (the biggest stock market in the world).
(2) Being the biggest financial market in the world, it's also the most liquid financial market in the world. Exporters/Importers, investors, and fund managers around the world utilize the FX markets for hedging currency risk and/or placing speculative bets on a daily basis. The FX Markets are essential to companies that do business globally.
(3) Trading in FX market can be done 24 hours around-the-clock, from 5:15 EST on Sunday to 5:00 EST on Friday. The FX market is only closed on weekends.
(4) There is unlimited profit potential for traders in BOTH Bull and Bear markets.
(5) With reference to the above point, short selling (in a bear market) is not hindered by the annoying uptick rule in equities markets. Additionally, there are no trading curbs.
(6) This is probably one of the most important benefit/advantage of trading in the FX market, LOW TRANSACTION COSTS. The only cost to you, the trader, would be the spread between the buy/sell price, which is usually pennies on the dollar for the liquid currency pairs (EUR/USD, USD/JPY, GBP/USD, etc...). In the equities and futures markets, commissions can run up to $20 per trade, and if you were to execute around 20 trades per day, that's a $400 cut back on your profits.
(7) The FX Market is also one of the most versatile markets. What I mean here is that traders can customize leverage according to their risk appetite. While margin accounts in the equities markets only offer 2:1 leverage, and futures/options markets only offer 10:1 leverage, the FX market offers up to 200:1 leverage (depending on the market maker). Used properly, this high leverage can be very powerful and lead to astonishing profits.
(8) In addition to leverage, position sizes are also customizable, which is ideal for traders who want to slowly scale into trade (a risk management strategy). Let's say a standard position size in the FX Market is 100,000 units, the trader can open a position for 25,000 units if he is cautious of whipsaw price action during really active hours, then if the market moves in favour of the trade the trader can open another position for 25,000 units. If the market moves against the trader's position then he has just cut back his losses by 75%. There are many risk management strategies and I will not go through them here, but that is definitely a topic that I will touch upon later on (so check back regularly!).
(9) Shorter trade processes would generally minimize errors, and that is another great characteristic of the FX Market. In the past decade, trading in the FX Market has evolved along with the internet boom, and many retailers offer online trading platforms where traders can instantly execute trades and get real-time price-quotes for many currency pairs at once. A trade done online is only a three-step process: (a) The trader places an order, (b) The FX dealing desk would automatically execute the trade electronically, and (c) the trader receives confirmation of the order when it posts on the trader's trading platform. This 3-step process takes only seconds to execute, so traders can rest assured that their orders have been filled without error or delay.
(10) This is probably my favourite reason for trading in the FX Market: The carry-trade. I won't go into too much detail here about the carry-trade, but essentially you can earn interest on positions that are short the lower-yielding currency and long the higher-yielding currency (interest rate differentials between currencies of different countries). There is also no expiry date on open positions. Utilized properly, the carry trade can add to your profits. I will explain the carry-trade later on!
As you can see, there is practically no downside to trading in the FX Market, only advantages! Just these 10 reasons alone should get you excited about participating in the largest financial market in the world!
Hope that this clears up any myths (the ones I've heard are usually negative) about trading in the FX Market. Remember to check back regularly for useful information on forex trading!
P.S. HAPPY THANKSGIVING!
To your success,
Dickens
Thank you for checking back! I'm really excited (and nervous...) about writing the second post of my newly-launched blog; I hope the information that I will be sharing with you all in the many days to come will be exceeding your expectations.
Today I will talk about all the reasons why you should be trading forex (if you aren't doing so already). To keep this from being a multi-page essay, I will only state the top 10 reasons (I'm pretty sure you'll find many many more as you progress and grow as a forex trader):
(1) The FX (An even shorter abbreviation for Foreign Exchange) Market is the biggest financial market in the world, with over US$2 trillion traded daily. In contrast, the NYSE only trades about US$50 billion every day. That's over 40 times the daily volume of the NYSE (the biggest stock market in the world).
(2) Being the biggest financial market in the world, it's also the most liquid financial market in the world. Exporters/Importers, investors, and fund managers around the world utilize the FX markets for hedging currency risk and/or placing speculative bets on a daily basis. The FX Markets are essential to companies that do business globally.
(3) Trading in FX market can be done 24 hours around-the-clock, from 5:15 EST on Sunday to 5:00 EST on Friday. The FX market is only closed on weekends.
(4) There is unlimited profit potential for traders in BOTH Bull and Bear markets.
(5) With reference to the above point, short selling (in a bear market) is not hindered by the annoying uptick rule in equities markets. Additionally, there are no trading curbs.
(6) This is probably one of the most important benefit/advantage of trading in the FX market, LOW TRANSACTION COSTS. The only cost to you, the trader, would be the spread between the buy/sell price, which is usually pennies on the dollar for the liquid currency pairs (EUR/USD, USD/JPY, GBP/USD, etc...). In the equities and futures markets, commissions can run up to $20 per trade, and if you were to execute around 20 trades per day, that's a $400 cut back on your profits.
(7) The FX Market is also one of the most versatile markets. What I mean here is that traders can customize leverage according to their risk appetite. While margin accounts in the equities markets only offer 2:1 leverage, and futures/options markets only offer 10:1 leverage, the FX market offers up to 200:1 leverage (depending on the market maker). Used properly, this high leverage can be very powerful and lead to astonishing profits.
(8) In addition to leverage, position sizes are also customizable, which is ideal for traders who want to slowly scale into trade (a risk management strategy). Let's say a standard position size in the FX Market is 100,000 units, the trader can open a position for 25,000 units if he is cautious of whipsaw price action during really active hours, then if the market moves in favour of the trade the trader can open another position for 25,000 units. If the market moves against the trader's position then he has just cut back his losses by 75%. There are many risk management strategies and I will not go through them here, but that is definitely a topic that I will touch upon later on (so check back regularly!).
(9) Shorter trade processes would generally minimize errors, and that is another great characteristic of the FX Market. In the past decade, trading in the FX Market has evolved along with the internet boom, and many retailers offer online trading platforms where traders can instantly execute trades and get real-time price-quotes for many currency pairs at once. A trade done online is only a three-step process: (a) The trader places an order, (b) The FX dealing desk would automatically execute the trade electronically, and (c) the trader receives confirmation of the order when it posts on the trader's trading platform. This 3-step process takes only seconds to execute, so traders can rest assured that their orders have been filled without error or delay.
(10) This is probably my favourite reason for trading in the FX Market: The carry-trade. I won't go into too much detail here about the carry-trade, but essentially you can earn interest on positions that are short the lower-yielding currency and long the higher-yielding currency (interest rate differentials between currencies of different countries). There is also no expiry date on open positions. Utilized properly, the carry trade can add to your profits. I will explain the carry-trade later on!
As you can see, there is practically no downside to trading in the FX Market, only advantages! Just these 10 reasons alone should get you excited about participating in the largest financial market in the world!
Hope that this clears up any myths (the ones I've heard are usually negative) about trading in the FX Market. Remember to check back regularly for useful information on forex trading!
P.S. HAPPY THANKSGIVING!
To your success,
Dickens
***RISK WARNING DISCLAIMER***
(Source: http://www.fxcm.com) Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
posted by ForexDragon at 7:01 PM
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