Pros of Trading
- Low Costs: Forex trading can have very low costs (brokerage and commissions). There are no commissions in a real sense – most forex brokers make profits from the spreads between forex currencies. Hence, one does not have to worry about including separate brokerage charges, eliminating an overhead. Compare that to equity or other securities trading where the brokerage structure varies widely and a trader must take such fees into account.
- Suits Varying Trading Styles: The forex markets run all day, enabling trades at one’s convenience, which is very advantageous to short-term traders who tend to take positions over short durations (say a few minutes to a few hours). Few traders makes trades during complete off-hours. For example, Australia’s daytime is the nighttime for the East Coast of the US. A US-based trader may trade AUD during US business hours, as little development is expected and prices are in stable range during such off-hours for AUD. Such traders adopt high-volume, low-profit trading strategies, as they have little profit margins due to a lack of developments specific to forex markets. Instead, they attempt to make profits on relatively stable low volatility duration and compensate with high volume trades. Traders can also take long-term positions, which can last from days to several weeks; forex trading is very accommodating in this way.
- Offers Very High Liquidity: Compared with any other financial markets, the forex market has the largest number of market participants. This provides highest level of liquidity, which means even large orders of currency trades are easily filled efficiently without any large price deviations. This eliminates the possibility of price manipulation and price anomalies, thereby enabling tighter spreads that lead to more efficient pricing. One need not worry about the high volatility during opening and closing hours, or stagnant price ranges during the afternoons, which are trademarks of equity markets. Unless major events are expected, one can observe similar price patterns (of high, mid or low volatility) throughout the non-stop trading.
- No Central Exchange: Being an over-the-counter market operating across the globe, there is no central exchange or regulator for the forex market. Various countries’ central banks occasionally interfere as needed, but these are rare events, occurring under extreme conditions. Most such developments are already perceived and priced into the market. Such a decentralized and deregulated market helps avoid any sudden surprises. Compare that to equity markets, where a company can suddenly declare a dividend or report huge losses, leading to huge price changes. In addition, the chances of insider trading are almost nil (especially on major currency pairs), as there are no insiders in the forex market, which is dependent on global factors and perceived developments.
- Volatility Is a Trader’s Friend: The major currencies frequently display high price swings. If trades are placed wisely, high volatility assists in enormous profit making opportunities.
- Variety Of Pairs To Trade: There are 28 major currency pairs involving eight major currencies. Criteria for choosing a pair can be convenient timing, volatility patterns, or economic developments. A forex trader who loves volatility can easily switch from one currency pair to the other.
- Low Capital Requirements: Due to tight spreads in terms of pips, one can easily start forex trading with a small amount of initial capital. Without more capital, it may not be possible to trade in other markets (like equity, futures or options). Availability of margin trading with high leverage factor (up to 50-to-1) comes as the icing on the cake for forex trades. While trading on such high margins comes with its own risks, it also makes it easier to get better profit potential with limited capital.
- Ease: There are hundreds of forex technical indicators to draw on for short-term trades, and several fundamental analysis theories and tools for long-term forex trading, creating enormous choice for traders with varying levels of experiences to make a swift entry into forex trading.