When you look at trading in the foreign exchange market you have to consider the benefits. Considering the benefits can tell you whether or not this is the best option for you. There are many advantages to look at and these also work as comparisons to other financial markets
Size of the Market
The foreign currency exchange is the largest and most liquid market in the world. On a daily basis it is estimated that around $5 trillion worth of currency is traded. To put this in perspective the stock market only has an estimated daily trade value of $22.4 billion. This is a clear display of how much larger the forex market is.
Trading with Ease
Most financial markets require a broker to be used when trading is done. However, this is not the case with the foreign exchange market. The invention of online trading platforms has opened a range of possibilities to all traders. With the use of these platforms traders are able to complete their trades from anywhere in the world as long as they have an internet connection. The ways that you can fund your account have also become easier. Many platforms allow the use of credit and debit cards in addition to online payment methods such as PayPal.
The trading hours of the stock market will depend on where the exchange is and the local time. The New York exchange will only be open during day at the local New York time. This means that traders in other countries may not be able to trade during their day time. The advantage that the forex market has in this respect is the fact that it is open 24 hours Monday to Friday. As there is no central exchange buildings there are no specific times when certain currencies can be traded.
Cost of Opening an Account
The cost of opening a trading account is much lower on the forex market than other financial markets. For stocks you require a large investment prior to the trade. With many trading platforms the investment needed is as little as $1. Of course, the larger the investment in the foreign exchange market the greater the returns will be.
In order to get people to use their service many brokers and platforms will offer free items during promotions. Traders are able to take advantage of these promotions which will help hone trading skills, allow trades with no investment and gain valuable knowledge about trading. Of course, you need to be careful when you look at these free offers. Some brokers offer free features that you do not need and use them to hide bad terms and conditions.
Foreign Exchange Market Leverage
Another benefit of foreign exchange is that you are able to trade more than the amount in your balance. This is done through the use of leverage, but should also be used wisely and not by new traders. Leverage is shown as a ratio such as 100:1 which allows you to trade 100 times more than you have in your account. While leverage allows you to buy greater amounts of currencies it also allows you to have exponentially greater losses.