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Advantages of Forex Trading

Learn more about forex trading and how you can possibly benefit from it below.

The foreign exchange trading market is acknowledged as the biggest and most fluid of all monetary marketplaces. Stock market statistics disclosed that daily market activity is more than $US4 trillion. More than $US 1.5 trillion is carried out in the form of spot trading. This kind of forex trading includes a contract to buy and sell a specified amount of currency pair with a market-maker at the advertised price or spot rate. It is the unpredictability of the currency exchange trading market that permits merchants to take advantage of the rise and fall of exchange rates for speculative reasons. However, traders must know that greater volatility is also tantamount to the risk potential.

Market Operations and Liquidity

Foreign exchange trade operations take place five days a week and 24 hours daily. Liquidity happens when operational hours in multiple time zones extend beyond the normal period. Thus, it is vital for those involved to be aware of the relationship between liquidity and market activity.

The cost to trade with most foreign exchange brokers is called spread which is the difference between the bids and ask price. These spreads in the trading foreign exchange market are inclined to be much less than spreads in other securities such as stocks. This makes over-the-counter foreign exchange trading the most lucrative mode of investment trading.

Benefits of Trading in the Foreign Exchange Market

There are many benefits in trading foreign currency. There are no commissions involved. Likewise,

you do not have to pay clearing and exchange fees, government charges and brokerage cost. Majority of retail brokers are remunerated for their services through the bid-ask system.

There are no middlemen since the spot currency form of trading does away with go-betweens and lets you deal directly with the market in charge for the pricing on a particular currency pair.

There is no fixed lot size. In the futures forex market, lot or contract sizes are decided by the exchanges. In spot foreign exchange, you establish your own position or lot size which implies that traders can participate with accounts as little as $25.

The retail transaction costs or bid-ask spreads are moderately low. These are generally less than 0.1 percent under prevailing average market conditions. With bigger dealers, the spread could be lower than 0.07 percent depending on your leverage. The foreign exchange trading market is so big with numerous participants. There is no single institution which can control the market price for a long duration.

Margin-Based Trading

A lot of over-the-counter trade currency brokers offer margin-based accounts in trading. These financial credits differ from credit-based accounts. You need to open an account with your broker which will be funded through a deposit. When this is funded, you can engage in any trading activity for as long as you have an adequate balance remaining in your account. Leverage makes it likely for you to buy and sell larger positions than would otherwise be possible depending on your real account balance. In other words, leverage makes possible greater prospects for returns.

Category: Forex and trading

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