Isn't Forex something that is reserved only for the biggest banks, wealthiest individuals, multi-million dollar companies, and big money managers? It used to be, however participation by individual traders has grown phenomenally in recent years with the proliferation of the Internet and the launch of dozens of cash Forex firms taking advantage of online trading as well as the globalization of markets in general. With the advent of, and convergence of new technologies, enhancements in personal computers, global communication and software developments, the doors to this mammoth market have now become more and more accessible, even to the average traders and investors.Today, it is possible for an average trader to open a trading account of only a few hundred dollars with a licensed foreign currency broker, meaning that virtually anyone can get in on this massive cash bonanza in this 3-TRILLION-dollar a day industry.
Here are some of the advantages of Forex trading:
- Unlike the Stock Market, Forex is Always Open (24 Hours a day)
- Forex trading starts on Monday morning in Sydney, Australia (Sunday afternoon in the United States) and moves around the globe as business is conducted around the world from Tokyo to Hong Kong to Moscow to London to New York. Why is this important? Because anything that happens anywhere in the world at any time of day or night affects the Forex market immediately. It is not necessary for an exchange to open before the effects can be seen, like in the stock market. The Forex market is always open for trading, 24 hours a day, 5 days a week.
With the advances in technology, specifically the internet, computers, online trading, and electronic trade-matching platforms, most Forex trade executions are instantaneous, getting traders into and out of positions with a simple click of the mouse, once they make a trading decision. Today, Forex traders enjoy all the benefits of electronic trading and immediate updates of all positions and the status of their trades.
Very High Liquidity
Due to its sheer size, around-the-clock trading, electronic trade execution, illiquidity is not much of an issue in Forex trading. There is almost always someone to take the other side of a position a trader may want to establish, no matter when the order is placed. Forex bids and asks tend to be tight and slippage minimal.
50 to 1 Leverage
Forex markets provide some of the highest leverage available in any investment vehicle. Traders may control a sizable position of say $5,000 with as little as one hundred dollars. As a result, a small move in a trader's favor can produce a big return on investment. However, traders must remember that leverage works both ways. A small move that is against a position can eat up the capital in a trader's account quickly if he/she is not swift enough to protect the losing position. Leverage has the power to reward quickly, but also punish those who are not responsible.
Governments issue numerous reports each week, which influence the Forex market. This information is widely disseminated by the financial media. With advances in the Internet and financial news services, prices and economic data are delivered instantaneously and are available to all traders worldwide. This helps traders make timely trading decisions, particularly when it comes to fundamental analysis of the currency markets.
Ease of Execution
Today's Forex traders do not have to analyze or watch the reports and price movements of hundreds of companies or mutual funds, trying to figure out which ones to buy or sell. With all of the fundamental information coming from many sources every day, traders can make their trading life easier by concentrating on the Forex market, because they can easily limit themselves to monitoring movements of just a handful of currencies. In addition, traders do not have to worry about going short or selling on an uptick, as they do with stocks, because selling is just as easy as buying in the Forex market.
Once you understand the basics of technical analysis and how to apply a software program to trading, you can easily extend that knowledge to all Forex markets without having to learn and understand a whole new set of market rules. Because currencies are influenced by governmental policies and economic developments that usually stretch over long periods of time, Forex markets have a reputation for being good trending markets. As a result, if traders keep an eye on economic conditions and charts as they evolve, they will find that currencies' moves are easier to predict than movements in other markets. Naturally, trading a trending market is much, much easier than trading a choppy market.