When putting together an investment portfolio it is important to consider which market is the most suitable trading platform for your needs. The forex market is often considered to have a number of advantages over more traditional markets. Here’s why.
Due to the nature of the market, a foreign exchange trader is able to control vast currency sums with a relatively small margin. The minimum requirement for forex trading is just 1% of the total value. Compare this to approximately 5% in futures trading and 50% in stocks and you can see why the forex market has become so popular. With such low margins, trading on the fx market can prove highly profitable. In addition, equity can be accessed at any point due to the fact that there are no holding times or tie-ins.
Limited Risk and Guaranteed Stop Orders
Managing risk is a fundamental element to success in the forex market. Guaranteed stops can be used to reduce risk and limit additional loses by stopping the trader out at a certain point. There will usually be a minimum distance before a stop order can be enforced. Stop orders can be applied to transactions by using the trade form. They can be amended as necessary.
The foreign exchange market is known as Over-The-Counter (OTC) trading. There are very few barriers for participating in trading activity. Not only is it very easy to source information and advice both online and through brokers, but the only tools necessary to start trading are a laptop and a reliable Internet connection. Broker sites, email, fax or telephone communication can all be used to carry out transactions.
The forex market is open twenty-four hours a day, five days per week. Opening in New York, on to Europe, Asia and Australia, before returning to the United States. Trading can take place at any time during the week (Monday to Friday). Conversely, trading on the futures markets is somewhat limited by the shorter business hours. The disadvantage of this is the inability to adjust your trading decisions when the markets are closed. This can be especially frustrating if the markets are reacting to a significant news story.
No Commission and No Exchange Fees
One of the most attractive things about the fx market is the fact that unlike when trading in stocks or futures, it is commission free.
Free Market Place
As the largest market worldwide (approximately 46 times larger than the sum of all futures markets), foreign exchange cannot easily be artificially controlled. While governments are increasingly bringing in regulation (an important step forward), it is almost impossible for currency prices to be fixed.