Forex Trading - Benefits of Trading Forex
There are many advantages of trading forex over trading in other market instruments such as equity and derivative. The benefits of trading forex has the following benefits −
Low cost
If we consider trading forex market spot, normally there is no clearing fees, no exchange fees, no government taxes, no brokerage fees and no commissions. Generally, retail brokers make their profits from the Bid/Ask Spread, which is apparently very transparent to users.
No middlemen
In spot forex trading, there are no middlemen. It allows you to trade directly with the market accountable for the pricing of the currency pair (EUR/INR).
No fixed lot size
In the spot forex market, there is no fixed lot size for trading, though there is a fixed lot size which you need to trade, if you are trading in forex future or option market. This is one of the big advantages of forex trading. Generally, brokers provide the option to buy in multiple lot sizes as per your client requirement or convenience. Lot sizes differ broker to broker - standard lot, mini lot, micro lot or even nano lots. This enables you to start trading from as low as $50.
Low transaction costs
The retail transaction cost (bid/ask spread) is usually as low as 0.1% and for bigger dealers, this could be as low as 0.07%.
No one can corner the market
The foreign exchange market is large and has many participants, and no single participant (not even a central bank) can control the market price for a prolonged time period. Therefore, the chances of sudden extreme volatility is very rare.
24-hours open market
We do not have to wait for the opening bell to ring to start trading in forex. The forex market starts, from the Monday morning opening of the Sydney session to the afternoon close session of New York session. This allows us to trade anytime we prefers without giving much attention on what time it is.
Use of Leverage and Margin
This is one of the factors, which drags more and more traders towards forex trading. Forex brokers permit traders to trade the market by using leverage and with low margin, which gives the ability to trade with more money than what is available in your account. This allows traders with less amount to trade with much higher value of trade. For example, a forex broker may allow you the margin of 50 to 100 times your invested money. Therefore, if you have $100 in your account, you can take position from $5000 to $10000 that in turn can provide you bigger returns if the trade is in your favor. Inversely, always be cautious while taking very-high leverage without risk management; especially if you are a beginner, as this may wipe-out your entire amount within a couple of minutes.
Very High Liquidity
Because the size of forex market is huge, it is extremely liquid in nature. This allows you to buy or sell currency any time you want under normal market conditions. There is always someone who is willing to accept the other side of your trade.
