There are many benefits and advantages of trading Forex. Here are just a few general reasons according to BabyPips why more and more 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. At many brokers all trading orders are sent directly to the liquidity providers without any intermediaries to ensure minimum execution time.
No fixed lot size
In spot Forex, you determine your own lot, or position size. This allows traders at most brokers to participate with the minimum trade size of 0.01 lots (1 000) with deposits as small as 100 EUR / USD / CHF / GBP.
Lower Transaction Costs
The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market conditions. At larger dealers, the spread could be as low as 0.07%.
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 very convenient for those who want to trade on a part-time basis, because you can choose when you want to trade: morning, noon or at night.
No one can corner the market
The foreign exchange market is so huge and has so many participants that no single entity can control the market price for an extended period of time.
Leverage – Trading on Margin
In Forex trading, a small deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits while at the same time keeping the risk capital to a minimum.
For example, if you trade with 1:100 leverage it means thata 100 EUR margin deposit would enable a trader to buy or sell 10,000 EUR worth of currencies. Similarly, with 500 EUR, one could trade with 50,000 EUR and so on. However, leverage can also be a double-edged sword as without proper risk management, this high degree of leverage can lead to large losses as well as gains.
Due to the massive size of Forex market, it is also extremely liquid. This 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 and thus 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. Many brokers offers Micro trading account with a minimum account deposit of 100 EUR.
I am not recommending that you should open an account with the bare minimum, but it does make Forex trading much more accessible to an individual who does not have a lot of start-up trading capital.
Free Demo Account, Forex Education Material and Analytics
Most brokers also offers a demo account to allow you to practice trading and build your skills. You will also have access to loads of free Forex education material including video tutorials, daily market analysis and trading platform guides.
If you are new to Forex, we recommend that you start by opening a demo account as it is a very valuable resource for those who are financially hampered and would like to sharpen their trading skills with virtual money before opening a live trading account and risking real money.