Part 3: Why Trade FOREX?
While many traders are aware of the benefits of trading on the stock exchange, few new
traders understand the advantages of trading FOREX. This market is gaining in popularity because
it offers many benefits that they don’t get with other markets. Here are a few reasons why
trading FOREX has gained so much favour among traders.
No commissions. No one likes to pay fees to make money. On FOREX, traders do not pay clearing fees, exchange fees, government fees or brokerage fees. Quite simply, traders don’t have to give away part of their profits to these fees. Retail brokers on FOREX are compensated through the “bid-ask spread”, which will be explained in further detail later.
No middlemen. Traders can trade directly with the market instead of relying on a middleman
to make the trades for them.
No fixed lot size. When trading FOREX, traders can participate with $25 or less. Traders
determine their own lot, which makes the market accessible to just about everyone.
24-hour Market. Traders can trade at any time of the day or night, which makes it easy
for part-time traders to decide when they want to trade. The Australian market opens on
Monday mornings and it closes in New York on Friday afternoons.
Low-cost transactions. The transaction cost for trades is usually less than 0.1 percent.
This is the bid-ask spread where brokers make their money. With larger brokerage companies,
the cost per transaction can be as low as 0.07 percent.
The market cannot be controlled. This market is so big and encompasses so many traders that it cannot be controlled by any single entity for any length of time.
Entry into FOREX is easy. It can be easy to think that it would cost a small fortune to begin trading currency, but in actuality, most online FOREX brokers offer trading accounts for as low as $25, sometimes less. This doesn’t mean traders should start with that small of an account, but it does mean that traders can start without a lot of start-up capital.
Highly liquid. The FOREX market is huge, which means it is also highly liquid. Traders do
not get “stuck” with a trade because there is almost always someone else who is willing
to take what is being offered. In fact, traders are able to set a take profit order so that when they reach the profit level they want, the trade can be closed. They can also set a
stop loss order to close a trade if it’s going the wrong way.
More leverage. Small deposits are able to control larger contract values, which gives
traders the ability to reap significant profits and keep risk capital low.
Free information and practice. Almost all online FOREX brokers provide free demo accounts
to give potential traders practice before trying the real thing. This is a great way for traders
to build their skills and risk fake money before risking real money on the actual FOREX.