Category: 5. Why Trade Forex

It’s not just the stock market. The forex market also boasts of a bunch of advantages over the futures market, similar to its advantages over stocks.

But wait, there’s more… So much more!

Liquidity

In the forex market, $6.6 trillion is traded daily, making it the largest and most liquid market in the world.

This market can absorb trading volume and transaction sizes that dwarf the capacity of any other market.

The futures market trades a puny $30 billion per day. Thirty billion? Peanuts!

The futures markets can’t compete with its relatively limited liquidity.

The forex market is always liquid, meaning positions can be liquidated and stop orders executed with little or no slippage, with exception to extremely volatile market conditions.

24-Hour Market

At 5:00 pm EST Sunday, trading begins as markets open in Sydney.

At 7:00 pm EST the Tokyo market opens, followed by London at 3:00 am EST.

And finally, New York opens at 8:00 am EST and closes at 4:00 p.m. EST.Before New York trading closes, the Sydney market is back open – it’s a 24-hour seamless market!

As a trader, this allows you to react to favorable or unfavorable news by trading immediately.

If important data comes in from the United Kingdom or Japan while the U.S. futures market is closed, the next day’s opening could be a wild ride.

Overnight markets in futures contracts do exist, and while liquidity is improving, they are still thinly traded relative to the spot forex market.

Minimal or no commissions

With Electronic Communications Brokers becoming more popular and prevalent over the past couple of years, there is the chance that a broker may require you to pay commissions.But really, the commission fees are peanuts compared to what you pay in the futures market.

The competition among spot forex brokers is so fierce that you will most likely get the best quotes and very low transaction costs.

Price Certainty

When trading forex, you get rapid execution and price certainty under normal market conditions. In contrast, the futures and equities markets do not offer price certainty or instant trade execution.Even with the advent of electronic trading and limited guarantees of execution speed, the prices for fills for futures and equities on market orders are far from certain.

The prices quoted by brokers often represent the LAST trade, not necessarily the price for which the contract will be filled.

Guaranteed Limited Risk

Traders must have position limits for the purpose of risk management. This number is set relative to the money in a trader’s account.Risk is minimized in the spot forex market because the online capabilities of the trading platform will automatically generate a margin call if the required margin amount exceeds the available trading capital in your account.

During normal market conditions, all open positions will be closed immediately (during fast market conditions, your position could be closed beyond your stop loss level).

In the futures market, your position may be liquidated at a loss bigger than what you had in your account, and you will be liable for any resulting deficit in the account. That sucks.

ADVANTAGES	FOREX	FUTURES
24-Hour Trading	YES	No
Minimal or no Commission	YES	No
Up to 500:1 Leverage	YES	No
Price Certainty	YES	No
Guaranteed Limited Risk	YES	No

Judging by the Forex vs. Futures Scorecard, Mr. Forex looks UNBEATABLE! Now meet the winners who trade the forex market.

There are approximately 2,800+ stocks listed on the New York Stock exchange. Another 3,300+ are listed on the NASDAQ.

Which one will you trade? Got the time to stay on top of so many companies?With forex, there are dozens of currencies traded, but the majority of market players trade the seven major pairs.

Aren’t seven major pairs much easier to keep an eye on than thousands of stocks?

Look at Mr. Forex. He’s so confident and sexy. Mr. Stocks has no chance!

That’s just one of the many advantages of the forex market over the stock markets. Here are a few more:

24-Hour Market

The stock market is limited to an exchange’s opening hours. For example, in the U.S., most stock exchanges open at 9:30 am EST and close at 4:00 pm EST.

The forex market is a seamless 24-hour market. Most brokers are open from Sunday at 5:00 pm EST until Friday at 5:00 pm EST, with customer service usually available 24/7.

With the ability to trade during the U.S., Asian, and European market hours, you can customize your own trading schedule.

Minimal or No Commissions

As a lot of online stock brokers now offer zero commissions, so this is now less of a factor.

Most forex brokers charge no commission or additional transaction fees to trade currencies online or over the phone.Combined with the tight, consistent, and fully transparent spread, forex trading costs are lower than those of any other market.

Most brokers are compensated for their services through the bid/ask spread.

Higher Trading Volume and Liquidity

The forex market sees an average daily turnover of $6.6 trillion.

The stock market sees a fraction of this.

Short-Selling without an Uptick

Unlike the equity market, there is no restriction on short selling in the currency market. Trading opportunities exist in the currency market regardless of whether a trader is long OR short, or whichever way the market is moving.

Since currency trading always involves buying one currency and selling another, there is no directional bias to the market. So you always have equal access to trade in a rising or falling market.

Minimal Market Manipulation

How many times have you heard that “Fund A” was selling “X” or buying “Z”? The stock market is very susceptible to large fund buying and selling.With currency trading, the massive size of the forex market makes the likelihood of anyone fund or bank controlling a particular currency very small.

The FX market is sufficiently liquid that significant manipulation by any single entity is all but impossible during active trading hours for the major currencies.

Banks, hedge funds, governments, retail currency conversion houses, and large net worth individuals are just some of the participants in the spot currency markets where the liquidity is unprecedented.

Analysts and brokerage firms are less likely to influence the market

Have you watched TV lately? Heard about a certain Internet stock and an analyst of a prestigious brokerage firm accused of keeping its recommendations, such as “buy,” when the stock was rapidly declining?It is the nature of these relationships. No matter what the government does to step in and discourage this type of activity, we have not heard the last of it.

IPOs are big business for both the companies going public and the brokerage houses.

Relationships are mutually beneficial and analysts work for the brokerage houses that need the companies as clients. That catch-22 will never disappear.

Foreign exchange, as the prime market, generates billions in revenue for the world’s banks and is a necessity of the global markets. Analysts in foreign exchange have very little effect on exchange rates; they just analyze the forex market.

ADVANTAGES	FOREX	STOCKS
24-Hour Trading	YES	No
Minimal or no Commission	YES	Maybe
Liquidity	HUGE	Meh
Short-Selling without an Uptick	YES	No
No Market Manipulation	Depends	No

In the battle between forex vs. stocks, it looks like the scorecard between Mr. Forex and Mr. Stocks shows a strong victory by Mr. Forex! Will it go for 2-0 with Mr. Futures?

There are many benefits and advantages of trading forex.

Here are just a few reasons why so many people are choosing this market:

No commissions

No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail forex brokers are compensated for their services through something called the “spread“.

No fixed lot size

In the futures markets, lot or contract sizes are determined by the exchanges. For example, a standard-sized contract for silver futures is 5,000 ounces.In forex, you can trade smaller lot sizes, or position size. This allows traders to open trades as small as 1,000 units.

Low transaction costs

The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market conditions.

For larger transactions, the spread could be as low as 0.07%. Of course, this depends on your leverage, and all that will be explained later.

A 24-hour market

There is no waiting for the opening bell. From the Monday morning opening in Australia to the Friday afternoon close in New York, the forex market never sleeps.This is awesome for those who want to trade on a part-time basis because you can choose when you want to trade: morning, noon, night, during breakfast, or in your sleep.

No one can corner the market

The FX market is sufficiently liquid that significant manipulation by any single entity is all but impossible during active trading hours for the major currencies.

The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank or the mighty Chuck Norris himself) can control the market price for an extended period of time.

Leverage

In forex trading, a small deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum.For example, a forex broker may offer 50-to-1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade with $25,000 dollars and so on.

While this is all gravy, let’s remember that leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

Deep Liquidity

Because the forex market is so enormous, it is also extremely liquid. This is an advantage because it means that under normal market conditions, with a click of a mouse, you can instantaneously buy and sell at will.

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. Online forex brokers offer “mini” and “micro” trading accounts, some with a minimum account deposit of $50.

We are NOT saying you should open an account with the bare minimum, but it does make forex trading much more accessible to the average individual who doesn’t have a lot of start-up trading capital.

Free Stuff Everywhere!

Most online forex brokers offer “demo” accounts to practice trading and build your skills, along with real-time forex news and charting services.

And guess what?! They’re all free!

Demo accounts are very valuable resources for those who are “financially hampered” and would like to hone their trading skills with “play money” before opening a live trading account and risking real money.

Now that you know the advantages of the forex market, see how it compares with the stock market!