Benefits of Forex trading
Understand the benefits of Forex trading with CMC Markets.
The Foreign Exchange market (also known as the Forex or FX market) is the largest and most liquid of the world’s financial markets, making it an ideal part of a trader’s portfolio. Despite the market’s relative size and liquidity, Forex trading remains a challenge to many retail/private traders, perhaps because they perceive Forex trading to be available only to large institutional players. This is not the case.
Currency trading has become increasingly accessible to and popular with individual traders with the widespread availability of online trading platforms. The benefits of Currency trading are numerous, here are a few examples:
Leverage
Forex is traded on margin, typically 2% or quite often referred to as 50:1 leverage. Trading on margin can be 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 $1,000 as initial margin, you could open up a $50,000 currency trading position. Remember though markets can move against you and losses can exceed your initial deposit.
Click here to see a Currency Trade example using margin.
24-hour market
Forex is an over-the-counter (OTC) market which means trades do not take place through a centralised exchange, therefore currency trading takes place around the world, 24 hours a day. It begins in New Zealand, followed by Sydney then Tokyo, before moving to Europe, London and then New York. Unlike any other financial markets, investors can respond to currency fluctuations caused by economic, political and social events as they occur, without having to wait for markets to open.
The Currency markets offer price volatility 24 hours a day so no matter what type of trader you are from intraday, end of day or end of work day you have numerous trading opportunities.
Liquidity
The currency market is the most heavily traded financial market in the world, with a daily average turnover of well over US$4 trillion. With so many market participants trading over 24 hours, the currency markets are more liquid than any other financial market.
So, if you trade a particular currency pair, whether it is for a $1,000 trade or a $10,000 trade, you will typically receive the same quoted price, which may not be the case in less liquid markets such as the share market.
No one is in control
The Currency markets are so large that they are beyond the financial control of any individual participant. Even central banks, which may intervene heavily and for periods of time influence the short-term direction of a currency, cannot control the underlying trend in their own currency.