Advantages Of Trading Forex Over Stocks And Commodities
By Adrian Pablo, Thu Dec 8th
There are many advantages to Trading as your main incomegenerator. We can start by something that may be worrying manyalready."Do I need a Diploma or Certification to trade theFOREX?" The answer is NO: When attempting to make more profitthan losses on the fluctuation of exchange rates between majorcurrencies(i.e.,Trading the FOREX), nobody is going to ask youfor a diploma, a formal license or verify the amount of hoursyou've spent studying the Foreign exchange market and bankingindustry. All you need is the proper training.
But this is not the only advantage you get when trading FOREX,compared to other ways of investment and speculation; i.e.Stocks and Commodities. You have a whole bunch of advantagesover these other options that will be enumerated in thefollowing paragraphs.
The Main Benefits of Trading the FX Spot Market:
1): is the largest financial market in the world.
With a daily trading volume of over $1.5 trillion, the spotFOREX market can absorb trading sizes that dwarf the capacity ofany other market. In fact, when compared with the $50 billiondaily market for equities or the $30 billion futures market, itbecomes quickly apparent this gives you, and millions of otherFOREX traders, almost infinite trading liquidity and flexibility.
2): is a TRUE 24-hour market.
The Market never sleeps. Trading positions can be enteredand exited at any moment - around the globe, around the clock,six days a week. There is no waiting for an opening bell as inthe case of trading stocks. It is a 24-hour, continuouselectronic (ONLINE) currency exchange that never closes. This isvery desirable for you if you want to trade on a part-timebasis, because you can choose when you want to trade: morning,noon or night.
3): There is never a Bear Market in FOREX.
You can have access to a seamless, mutually-inclusive (two-way)exchange of currencies. Meaning, because currencies trade in"pairs" (for example, US dollar vs. yen or US dollar vs. Swissfranc), one side of every currency pair (for example, USD/JPY -JPY = YEN) is constantly moving in relation to the other. Thus,when you buy a particular currency, you are actuallysimultaneously selling the other currency in that particularpair. As the market moves, one of the currencies will increasein value versus the other. Of course, it is up to you to choosethe correct currency to be long or short. Since currency tradingalways involves buying one currency and selling another, thereis no structural bias to the market. This means you have equalpotential to profit in both a rising or falling market.
4): High Leverage - up to 200:1 Leverage.
You are permitted to trade foreign currencies on a highlyleveraged basis - up to 200 times your investment with somebrokers. This is primarily attributed to the higher levels ofliquidity within the currency markets. Standard 100,000-unitcurrency lots can be traded with as little as 1% margin, or$1,000. Mini FX accounts are permitted to trade with just 0.5%margin -- in other words, just $50 allows you to control a10,000-unit currency position. Futures traders, who areaccustomed to margin requirements generally equal to 5%-8% ofthe contract value, will immediately recognize that the FOREXmarket provides much greater leverage, and for stock traders,who must post at least 50% margin, there is no comparison. Ifyou are looking for an efficient use of trading capital, this isthe answer.
5): Price Movements Are Highly
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Predictable.
Although currency prices in the FX market may be volatile, theygenerally repeat themselves in relatively predictable cycles,creating trends. The strong trends that foreign currenciesdevelop are a significant advantage for traders who use the"technical" methods and strategies taught at a number ofsources.
Unlike stocks, currencies rarely spend much time in tighttrading ranges and have the tendency to develop strong trends.Over 80% of volume is speculative in nature and, as a result,the market frequently overshoots and then corrects itself. As atechnically-trained trader, you can easily identify new trendsand breakouts, which provide for multiple opportunities to enterand exit positions.
6:) Commission-free Trading and Low Transaction Cost
When you trade FOREX, through one of our recommended brokers(this info is in our private resources section), you'll do ittotally commission-free! These brokers don't charge commissionsto trade or to maintain an account, and that goes for allclients trading the through them, regardless of youraccount balance or trading volume. Even Mini FX traders can buyand sell currencies online, commission-free.
What about trading fees? There are none of the usual fees towhich futures and equity traders are accustomed - no exchange orclearing fees, no N_F_A or S_E_C fees. Because currencies tradeover-the-counter (OTC), via a global electronic network -- inFOREX, what you see is what you get, allowing you to make quickdecisions on your trades without having to worry or account forfees that may affect your profit/loss or slippage.
In the equities markets, you must pay both a commission andexchange fees. The over-the-counter structure of the FX marketeliminates exchange and clearing fees, which in turn lowerstransaction costs.
So, if a broker don't charge commissions, how do theymake money? Like all traded financial products, over-the-counter currency trading involves a bid/ask spread, whichrepresents the prices at which your counterparty is willing totrade. Because the currency market offers round-the-clockliquidity, you receive tight, competitive spreads both intra-dayand night. Stock traders can be more vulnerable to liquidityrisk and typically receive wider trading spreads, especiallyduring after-hours trading.
7): Instantaneous Order Execution and Market Transparency.
Market transparency is highly desired in any tradingenvironment. The greater the market transparency, the moreefficient the market becomes. Unlike other markets wheretransparency is compromised (like in the Enron scandal), FOREXmarkets are highly transparent (i.e., analyzing countries, andhaving access to real-time research / news, is easier thancompanies).
Because of this transparency, as an FX trader, you will be ableto exercise risk management strategies in accordance to theproper fundamental and technical indicators.
The market offers the highest level of market transparencyout of all the financial markets. Because of this, orderexecution and fill confirmation usually occur in just 1-2seconds. Markets that do not offer executable prices and forcetraders to absorb slippage obviously compromise the trader'sprofit potential considerably.
In the world, order execution is all-electronic andbecause you'll be trading via an Internet-based platform,instantaneous execution is routine. There are no exchanges, notraditional open-outcry pits, no floor brokers, andconsequently, no delays.
About the author:Adrian Pablo; trader and freelance writer.
http://www.1-forex.com