Why Forex?

#1
WHY FOREX?

Faced with a vast array of markets and securities to trade it’s small wonder that retail traders often ask why they should specialise in forex and not equities, futures, or commodities? What are the major benefits to trading forex over and above trading other markets? What has underpinned the massive growth in the retail forex market over the past ten years?

Not all traders are ‘fans’ of forex trading and justifiably they’ll point out the faults, some of which we’ll talk through and debunk during this article to arrive at the conclusion as to why trading the FX markets, as a retail trader, makes perfect sense.

Limited Choice
When you consider that there are circa 4,500 stocks listed on the New York Stock exchange, 3,500 on the NASDAQ and that this is only one country’s bourses which equities will you decide to trade? Will you simply trade any equity according to; fundamentals, the noise from the squawk, or Bloomberg or Reuters, will you attempt to get in front of their numbers and results? Perhaps you’ll choose to do some technical analysis, the most basic being is the equity “overbought” or “oversold” in relation to its sector? An impossible management task for even the most sophisticated hedge funds, investment banks and algorithms.

I know equity traders who only trade certain sectors and drill down their trading to only a select few US stocks in that sector, for example, Google, Apple, Microsoft, Verizon. The irony is that these contacts of mine are adopting the same principles a successful forex trader would adopt, by only selecting 3-4 equites to trade they are mimicking similar behaviour to that of an FX trader who selects perhaps 4 pairs to monitor for the right set up.

Low Barriers to Entry
Many ‘anti’ FX traders will refer to the low barriers to entry in the FX market as a draw back when in fact it’s a huge benefit. Many traders will arrive at the markets due to a change in personal circumstances or a desire to seek out a new direction or challenge. Why should that desire be hampered by restrictive entry capital? Used correctly the leverage permitted in FX trading can always work to the trader’s advantage. Far better to risk and obligate €5000 to your new business venture as opposed to risking €50000, surely whilst learning any new self employed profession the less risk you take the better?

Liquidity and Size of Market
The FX market dwarfs all stock markets in volume. The figures for FX transactions are put at circa $4 trillion each day. Estimates put the New York Stock Exchange (NYSE) trading at circa $30 billion a day. The entire U.S. stock market trades circa $200 billion daily. The Futures market trades circa $500 billion daily. In terms of liquidity nothing surpasses the FX markets and whilst there are times during the day when the trading of certain pairs falls away, the market is, (during the Sun – Fri open) always ‘open’. The forex market is a seamless 24-hour market. The vast majority of brokers are open for business from Sunday at 4:00 pm EST until Friday at 4:00 pm EST, with their dedicated customer service divisions usually available 24/7. With the ability to trade during the U.S., Asian, and European market hours, you can easily customise your own trading schedule to fit around these market times.

Spotting Your Trades
In spot currency trading there are dozens of currencies traded, the majority of market players trade the four major pairs. Four pairs are much easier to trade than thousands of stocks. Even if you look for the same set up to occur on more currency pairs, (perhaps as many as nine pairs before correlations render it excessive), traders can monitor this level of activity quite simply.

Low Costs
The vast majority of reputable forex brokers charge little or no commission or additional transactions fees to trade currencies online or over the phone. Combine this with the tight, consistent, and fully transparent spreads and you quickly realise that forex trading costs are lower than those of any other market. Most brokers are compensated for their services through the bid/ask spread. The spread you’re charged is their profit.

Straight Through to the Market, No Intervention
Your forex trades are instantly executed under normal market conditions. Under these conditions, usually the price shown when you execute your market order is the price you get. You’re able to execute directly off real-time streaming prices. However, many brokers only guarantee stop, limit, and entry orders under normal market conditions. Trading during a market event, such as NFP day, or a Greece prime minister putting his country’s EU membership to a referendum, would not fall under the description of “normal market” conditions. Fills are instantaneous most of the time, but under extraordinarily volatile market conditions order execution may experience slight lagging delays.

Limited Risks
Forex trading offers the advantage of limited risk, one of the biggest advantages over the futures market. When you buy a futures contract, you are obligated to buy or sell a specific amount of a specific security or commodity at a specific time for a specific price. If you buy a futures contract to sell oil and news breaks that Renault are giving away water powered trucks and cars and Ford etc will follow suit, then the price on your contracts will drop through the floor, limits will drop, and you could be buried in your position finally taking massive losses. This could not happen in the forex market were you can simply exit your position.

No Restrictions
There are no restrictions on short selling in the currency market. Trading opportunities exist in the currency market regardless of whether a trader is long or short, whichever way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural ‘bias’ to the market. Therefore you always have equal access to trade in a rising or falling market.

Lower Margin Requirement
Margin requirements are significantly lower in forex trading than equity or futures trading. Whilst the level of margin allowed is determined by each broker, the restrictions are usually much less stringent when trading forex. Margin allows the investor to leverage, theoretically you borrow from the broker to invest in your own account. While this can be risky, it can also be very lucrative and profitable.

For example, you have €10,000 of your own money to invest, if you open up a margin account at an equity broker, you can usually margin up to 50% of the value of stock. So if you buy €10,000 in Apple stock, you can borrow another €5,000 to own a total of €15,000 in value. With your forex account, the margin requirement is often as low as 1%. Which means that if you buy €10,000 in Euros, you can use your broker’s money to buy another €1,000,000. So technically you own over $1 million in Euros.

If the value of each investment increases by 10% then your €15,000 in Apple stock is now worth €16,500. You then sell it, ‘pay back’ the €5,000 you borrowed, and you remain €1,500 in profit. Your return on investment (ROI) is 15%. If your Euros went up 10%, your €1 million is now worth €1.1 million. After selling and repaying your broker, your profit is €100,000 before any interest. That’s a return on investment of over 1,000%. Naturally you have to be careful when trading on margin, if the transaction highlighted went against you then you’d be in a much bigger drawdown in the forex scenario, however, you can close the trade before you reach such extremes. The potential for enormous gain is obvious, the major reason why forex trading attracts serious investors.

No Middleman
Centralised exchanges can provide many advantages to the trader. One drawback with centralised exchanges is the involvement of middlemen. Parties located in between the trader, buyer or seller of the security add a layer of cost. The cost can be quantified either in time, fees or both. Spot currency trading is decentralised, quotes vary from different currency dealers and liquidity providers. Competition is so fierce that you are always assured that you get the best quotes. Forex traders get quicker access and cheaper costs. With the advancement of ECN, NDD and STP and as the liquid pools of quotes from banks is constantly changing you can be assured that the quote you obtain will be as close to the best the market can provide.
Read the full story.....

Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/why-forex/
 
#2
"Forex" stands for foreign exchange; it's also known as FX. In a Forex trade, you buy one currency while simultaneously selling another.



Do not post advertising links except in advertising section.
 
Last edited by a moderator:

zapper

Active Member
#3
While there might be a lot of advantages for forex, one major advantage which is portrayed as a great advantage by many brokers is the leverage itself. The greater the leverage, the greater the risk through losses.
 
#4
Forex can be a great way of income but you can also lose a lot of money. If you don't find yourself in forex don't invest more and more money into your account just to avoid margin calls etc. Some make the mistake and stick to trading but they are just not good traders and they blow up all their accounts over and over again
 
#5
I choose forex trading because the market is open 24 hours so that i can participate as a part time trader. Most of the pairs (specially majors) has a very high volatility. So it allows us to get some profit every day.
 

radex78

Active Member
#6
I think many peoples join in forex because money reason , in forex market available opportunity make money without limitation , so many trader will try gained profit from forex , and to be more attract is with leverage , different with conventional market no any leverage , so with small funds we can generate profit similar with big funds , but beside it forex hidden high risk too , so don't think if get money from forex is easy
 

zapper

Active Member
#7
The best thing i like about trading forex is the liquidity. Not individual countries trade or traders alone trade. Even a small exchange over the counter can trigger major ups and downs in the foreign exchange markets. Unlike other markets, the major currency pairs are always seen as volatile.
 
#8
forex business is a very promising modern and flexible, you will not find a business model laen such as forex. can be done anywhere and 5 days x 24 hours, does not recognize both young and old age, and capital can be obtained from free. I like forex.
 

radex78

Active Member
#9
zapper said:
The best thing i like about trading forex is the liquidity. Not individual countries trade or traders alone trade. Even a small exchange over the counter can trigger major ups and downs in the foreign exchange markets. Unlike other markets, the major currency pairs are always seen as volatile.
Yes forex market is most liquidity market in the world , money move hand to hand in huge amopunt every open day market , more than 3 billion each day if i am not wrong , and other advantage forex market open 24 hours , 5 days a week , so if we as part time trader we can choose spare time for trading
 
#10
Yes, in FOREX there is no limit how much you can earn you can trade 24/7 and the more higher the capital you have the more profit you could get and losses as well but if you are skilled trader then you are more likely to earn.
 

radex78

Active Member
#11
monyitomon said:
Yes, in FOREX there is no limit how much you can earn you can trade 24/7 and the more higher the capital you have the more profit you could get and losses as well but if you are skilled trader then you are more likely to earn.
I see you wrong in your word , as i know forex only open 24 hours 5 day a week , so in a week market open as much 5 days not 7 days , so if we as part time trader we can choose time freely , for me i will look the chart if i have spare time since go to my home after my offline job
 

zapper

Active Member
#12
@radex78, although it is true that you can trade during any time of the day, it is noteworthy to remember that not always does the market show volatility. If you closely pay attention to the volumes, you can see that the trading volumes peak during a certain time of the day. This usually starts at London open and continues until Newyork open and peaks and slowly slopes down. So, if you are offline during these times, you might miss out the best...
 
#13
Forex has advantage of being a 24 hours market, it also allows for self studies and practice using demo accounts unlike the stock market and other counterparts
 

radex78

Active Member
#14
zapper said:
@radex78, although it is true that you can trade during any time of the day, it is noteworthy to remember that not always does the market show volatility. If you closely pay attention to the volumes, you can see that the trading volumes peak during a certain time of the day. This usually starts at London open and continues until Newyork open and peaks and slowly slopes down. So, if you are offline during these times, you might miss out the best...
Yes, i am noticed , often i am missing in london session because still in my offline work, and in new yorl overlapping often i am make mistake , because price likely volatile in the range , then due i am can't not monitored every time , i am improcve strategy with swing trading
 
#15
Session trading

radex78 said:
Yes, i am noticed , often i am missing in london session because still in my offline work, and in new yorl overlapping often i am make mistake , because price likely volatile in the range , then due i am can't not monitored every time , i am improcve strategy with swing trading
What time of the GMT is your time. Here in Nigeria GMT+1 I notice that the market is vibrant from 11:00GMT+1 to around 20:00GMT+1 when it is night here. This questions the claim of 24hr market on forex
 

radex78

Active Member
#16
fxpicpip said:
What time of the GMT is your time. Here in Nigeria GMT+1 I notice that the market is vibrant from 11:00GMT+1 to around 20:00GMT+1 when it is night here. This questions the claim of 24hr market on forex

In my country is GMT+7 , bangkok,hanoi,jakarta is the same time , not differ much and if i see london open is 8 am GMT , so in my country is 3pm GMT , in that time i am still in my offlie job , i ca;t meet time london open
 

zapper

Active Member
#17
That`s the misfortune most traders suffer. Especially if they are retail, have a day job and just don`t lie on the same time zone. If you are not able to trade london time, you might have to design a suitable strategy or may be get some breaks to monitor your trades.
 
#18
@radex78 Yes, 24 hours a day and 5 days a week that's the advantage of Forex and anyone can trade in Forex if you have the skills and capital then you can start trading in Forex. But not all trader can be a successful because we have to control our emotions in Forex especially the Greed we must control that, to be able to become successful in Forex.
 

zapper

Active Member
#19
@monyitomon, I partially agree and disagree with you. If a trader controls his or her emotions completely, he or she is comparable and probably equal to a forex trading robot. All robots have been known to fail at some point in their lifetime. But, a trader with at least 1% emotion might have taken an alternate decision and escaped huge losses...
 

radex78

Active Member
#20
monyitomon said:
@radex78 Yes, 24 hours a day and 5 days a week that's the advantage of Forex and anyone can trade in Forex if you have the skills and capital then you can start trading in Forex. But not all trader can be a successful because we have to control our emotions in Forex especially the Greed we must control that, to be able to become successful in Forex.

Sometime greedy not bad at all , if we have experience i think we already faced wioth some kinds of trend , there are strong trend , weak trend , and flat condition , if we place our gredy in strong trend , maybe will get huge profit , but honestly not anyone know future prioce , its included strong trenmd or volatile , so better avoid greedy