Some Advantages of Forex Trading Over Other Investments
Forex Trading has been a popular medium to earn from online. Every year, a huge number of people are involving themselves into forex trade. Why not? There are many benefits a trader can achieve while trading Forex. And these advantages have made Forex trading more beneficial than other traditional trading.
There are many different advantages to trading forex instead of futures or stocks. In this post, I have marked 6 different advantages to trading forex.
- Lower Margin
A forex trader has the ability to control a large amount of the currency basically by putting up a small amount of margin (just like futures and stock). Trading with futures usually requires around 5% margin of the fullness of the holding and it is 50% of the total value of the stocks. But, the margin requirements for forex is about 1%. Which means, it is lower than others. For example, the margin required to trade foreign exchange is $1000 for every $100,000; which means that, in forex trading business, a currency trader’s money can play with 5-times as much value of product as a futures trader’s and even 50 times more than a stock trader’s.
- No Commission and No Exchange Fees
In futures trading, you have to pay exchange and brokerage fees. But, forex trading has the advantage of being commission free. And, this is far better for a trader. Currency trading is a worldwide inter-bank market that allows buyers to be matched with sellers instantly.
In Forex trading, you do not have to pay a commission or charge to a broker to match the buyer up with the seller. In fact, the spread is usually larger than it is when you are trading futures.
- Limited Risk and Guaranteed Stops
Your risk can be unlimited while trading with Futures. For example, if you predict that the prices for Live Cattle were going to continue their upward trend in December 2003, before the discovery of Mad Cow Disease found in US cattle. And the price for it after that discovery fell dramatically which moved the limit down several days in a row. As a result, you would not have been able to leave your position and also this could have wiped out the entire equity in your account.
- Rollover of Position
You have to plan ahead if you are going to roll over your trades if futures contracts expire. Generally, forex positions expire every two days and you need to rollover each trade just so that you can stay in the right position.
- 24-Hour Marketplace
You are generally limited to trading only during the few hours that each market is open on any one day with Futures. If a major news story breaks out when the markets are closed, it is usually happens that, you won’t be able to find a way to get out of it until the market reopens, and it could be many hours away. On the other hand, in Forex, it is a 24/5 market. You can trade any time you like Monday-Friday at New York time.
- Free Marketplace
Foreign market is the largest market in the world with an average daily volume of US$1.4 trillion (approx.). And it is 46 times larger than all the futures markets put together. There is no limitation within it. With the huge number of people trading forex around the world, it is very hard for even governments to control the price of their own currency.