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Advantages Of Forex Trading

DayTradingBuddy 0

The forex market is the largest and most liquid of the financial markets. Daily activity often exceeds $7 trillion USD a day. It is the existence of volatility within the forex market that enables trader’s to take advantage of exchange rate fluctuations for speculative purposes. Traders must be aware that greater volatility also means greater risk potential.

Forex trading operates 24 hours a day, five days a week. The greatest liquidity occurs when operational hours in multiple time zones overlap. The cost to trade with most forex brokers is the spread. This is the difference between the bid and the ask price. Spreads in the forex market also tend to be much less (or tighter) than the spreads applied to other securities such as stocks.

Leverage is expressed as a ratio and is based on the margin requirements imposed by your broker. As a trader, it is important to understand both the benefits, and the pitfalls, of trading with leverage. 2% margin is equivalent to a 50:1 leverage ratio. With as little as $1,000 of margin available in your account, you can trade up to $50,000 at 50:1 leverage.

When trading on leverage, the funds in your account (the minimum margin) serve as your collateral. Therefore, it is only natural that your broker will not allow your account balance to fall below the minimum margin.

The forex markets run all day, which is very advantageous to short-term traders who tend to take positions over short durations (say a few minutes to a few hours). For example, Australia’s daytime is the nighttime for the East Coast of the US.

There are 28 major currency pairs involving eight major currencies. Criteria for choosing a pair can be convenient timing, volatility patterns, or economic developments.

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