The benefits of Forex trading
Forex trading is the simultaneous buying of one currency and selling of another. Currencies are quoted in pairs e.g. Euro vs. US Dollar. When one currency increases in value it means it strengthens against another and the value of the other decreases. Forex trading is a popular way to trade on financial markets as it is a true 24 hour market.
There are five 'Major' currencies
- US Dollar (USD)
- Euro (EUR)
- British Pound (GBP)
- Swiss Franc (CHF)
- Japanese Yen (JPY)
Forex trading from CMC Markets
- The Forex market is more liquid than any other financial market. This means clients have access to larger volumes, tight dealing spreads and lower margin rates
- Forex markets can be very volatile creating plenty of opportunities to trade
Leverage
Forex is traded on margin, typically 50:1 leverage. This is a more efficient use of your capital because you only have to allocate a very small proportion of the value of your position to secure a trade, while maintaining full exposure to the market. In effect you are increasing your profit potential. For example with $2,000 as initial margin you could open up a $100,000 Forex trading position.
24 Hours Market
Forex is an over-the-counter (OTC) market which means trades do not take place through a centralized exchange therefore Forex trading takes place around the world 24 hours a day. It is beginning in New Zealand followed by Sydney, and moving around the world to Tokyo, London and New York. Unlike any other financial markets, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur, without having to wait for markets to open.
Trading Forex is potentially less risky than trading the share market where you are sometimes exposed to price ‘gapping’ between the time markets close and re-open.
Liquidity
The Forex market is open 24 hours. It is the most heavily traded financial market in the world, with a daily average turnover of well over US$2 trillion. With so many market participants trading over 24 hours, the Forex market is more liquid than any other financial market.
For example if you trade a particular currency pair, whether it is for $10,000 or $10,000,000 trade, you will typically receive the same quoted price, which may not be the case in less liquid markets such as the share market.
