How to Trade the Forex
The cash/spot FOREX markets have certain unique attributes that offer an unmatched potential for profitable trading in any market condition or any stage of the business cycle. It leaves one to wonder why bother in the first place? The answer to that is very simple. Forex trading offers people who trade the following:
24-hour Market: A trader has the chance to take advantage of all of the profitable market conditions at any time; which means that there is no waiting for the start like the New York Stock exchange.
Highest Liquidity: The FOREX market is the most liquid market in the world. That means that a trader can enter or exit the market whenever they want during almost any market condition minimal execution barriers or risk and no daily trading limit.
High Leverage: It has a leverage ratio of up to 400 is normal when compared to a leverage ratio of 2 in the equity markets. Of course, this makes trading in the cash/spot forex market awkward a swell because it makes the risk of the down side loss much higher in the same way that it makes the profit potential on the upside much prettier.
Low Cost Per Transaction: The retail transaction cost is actually less than 0.1% under the normal market conditions. At larger dealers, the spread could be less than 5 pips, and may expand a great deal in fast moving markets.
Always Good Market: A trade in the FOREX market means selling or buying one currency against another. In essence, a bull market or a bear market for a currency is defined in terms of the outlook for value against other currencies. If the outlook is positive, you get a bull market where a trader profits by buying the currency against other currencies.
It's not Completely Unregulated: The FOREX market is seen as an unregulated market although the operations of major dealers like commercial banks in money centers are regulated under the banking laws.
For the average person who's willing to get into forex trading, this market is just a better bet. With it being so wide open like it is, you have a higher gross potential than with any other trade type.
No one can Corner the Market: The FOREX market is so large and has so many participants that no single trader, even a central bank, can control the market price for an extended period of time.
Inter-bank Market: The foundation of the FOREX market consists of a global network of dealers that communicate and trade with their clients through electronic networks and telephones. There are no organized exchanges like in futures that are there to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets.
Advantages of Trading the Forex Markets
There are many different instead of futures or stocks. The advantages are what makes this type of trading so popular. These advantages are where you will find the greatest comfort in trading Forex and they are:
Lower Margin
Just like with futures and stock speculation, a forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin. However, the margin needs for trading futures are usually around 5% of the full value of the holding.
What this means is that trading forex, a currency trader's money can play with 5-times as much value of product as a futures trader's, or 50 times more than a stock trader's.
When you are trading on margin, this can be a very profitable way to create an investment strategy, but it's important that you take the time to understand the risks that are involved as well.
No Commission and No Exchange Fees
When you trade in futures, you have to pay exchange and brokerage fees. Trading forex has the advantage of being commission free. This is far better for you. Currency trading is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant. You're going to have to compare both online forex and your specific futures commission charge to see which commission is the bigger one.
Limited Risk
When you are trading futures, your risk can be unlimited. For example, if you thought that the prices for orange juice were going to continue their upward trend, just before the Florida Hurricanes. The price for it after that fell dramatically, which moved the limit down several days in a row. You would not have been able to leave your position and this could have wiped out the entire equity in your account as a result. Because the price just kept on falling, you would have been obligated to find even more money to make up the deficit in your account.
Position Rollover
When futures contracts expire, you have to plan ahead if you are going to rollover your trades. Forex positions expire every two days and you need to rollover each trade just so that you can stay in your position.
24-Hour Marketplace
With futures, you are generally limited to trading only during the few hours that each market is open in any one day. Forex, on the other hand, is a 24/5 market. The day begins in New York, and follows the sun around the globe through Europe, Asia, Australasian and back to the US again. You can trade any time you like Monday-Friday.
Free Market Place
Foreign exchange is perhaps the largest market in the world with an average daily volume of US $1.4 trillion. That's 46-times as large as all the futures markets put together! With the huge number of people trading forex around the globe, it is very hard for even governments to control the price of their own currency.
