Advantages of Trading in Forex Over Other Investments

Advantages of Trading in Forex Over Other Investments

There are many advantages of trading in forex instead of futures or stocks, such as:

Some Advantages in Brief

Lower Margin

Just like trading in futures and stocks speculation, a trader in forex has the capability to manage a large amount of the currency by putting up a little amount of margin. However, the requirement of margin for trading futures are frequently around 5% of the filled value of the holding, or 50% of the whole value of the stocks, the requirement of margin for forex is a propos 1%. (For example, margin required to trade foreign exchange is $1000 for every $100,000.) This means that in forex trading, with this money a currency trader can play 5-times as much value of product as compared to a futures trader, or 50 times additional than a stock trader. When any account holder is trading on margin, this can be a gainful way to build an investment strategy, but it is significant that you acquire the time to recognize the risks that are concerned as well. You should be sure that you fully recognize how your margin account is going to work. Make sure that you understand the margin agreement between you and your payment firm. You will also desire to talk to your account delegate if you have any questions.

The trades that you take in your account can be partly or totally be liquidated on the chance that the obtainable margin in your account comes below a predetermined amount. You may not in fact get a margin call before your open positions are squared off. Because of this, you ought to monitor your margin balance on a usual basis and utilize stop-loss orders on every open position to limit downside risk.

No Commission and No Exchange Fees

While trading in futures, you are entitled to pay exchange and brokerage fees. Where as trading in forex has the benefit of being commission free. This is far better for you. Trading in currency is a worldwide inter-bank market that lets buyers to be matched with sellers in an instant. Even though you do not have to pay a commission charge to a broker to match the buyer up with the seller, the spread is usually larger than it is when you are trading futures.

3. Limited Risk and Guaranteed Stops

The risks in trading futures can be unlimited. For example, if any trader thinks that the prices for Live Cattle were going to carry on their upward trend in December 2003, just before the detection of Mad Cow Disease found in US cattle. The price for it after that fell dramatically, which moved the limit down several days in a row.

4. Rollover of Positions

When futures contracts expire, you have to plan if you are going to rollover your trades. Forex positions expire every two days and you need to rollover each trade just so that you can stay in your position.

5. 24-Hour Marketplace

With futures, you are generally limited to trading only during the few hours that each market is open in any one day. If a major news story breaks out when the markets are closed, you will not have a way of getting out of it until the market reopens, which could be many hours away. Forex, on the other hand, is a 24/5 market. The day begins in New York, and follows the sun around the globe through Europe, Asia, Australia and back to the US again. You can trade any time you like Monday-Friday.

6. Free market place

Foreign exchange is perhaps the largest market in the world with an average daily volume of US$1.4 trillion. That is 46 times as large as all the futures markets put together! With the huge number of people trading forex around the globe, it is very hard for even governments to control the price of their own currency.