Advantages of forex trading
The trading industry has seen an unprecedented surge in popularity over the last several years. There are still people who remember when trading stocks, FX, and alike, was only available to a handful of people who had the money, influence, and connections.
The reason for this is that investments mostly revolved around rather large sums, and so institutions and wealthy individuals were the only ones who could afford to participate. Meanwhile, regular people simply did not have enough money to access it.
The invention of the internet, fortunately, changed that forever. Today, anyone can simply go online, search for a broker, and start investing even small sums that only include a few hundreds of dollars, to begin with. Before long, people, indeed, started coming, and they never stopped.
But, with all of these new options available, many are still confused to this day, as they do not know where to begin. There are plenty of markets, as well as plenty of brokers, such as our own Rockfort Markets.
However, since most people are familiar with exchanging currencies, forex seems like the easiest way for many of these newcomers to start. Because of that, we decided to go through some of the biggest advantages and benefits of trading forex, which should be beneficial for the novices who are wondering what it is and whether or not they should engage with it.
What is forex?
Let's start from the beginning and answer the question of what forex is, in the first place.
Forex, or foreign exchange, is one of the easiest markets to get into. It revolves around exchanging one currency for another. Due to constant changes in prices, which can be high or low, depending on the currency, as well as many other factors, traders stand to earn quite a bit of money through these simple exchanges.
FX trade comes with many benefits that make it the best entry point for newcomers to the trading industry.
With that out of the way, let's take a look at some of the mentioned benefits of forex, and see how traders can use them to their advantage.
Top benefits of trading forex
1) Market hours
The forex market is an excellent choice for traders because it doesn't really shut down throughout the week. Of course, it doesn't work on weekends, but as far as the working days are concerned, it is pretty much open 24 hours per day.
When it comes to things like stocks and alike, you can only trade them during working hours, and the markets are shut down completely over the weekend. Forex's constant availability makes it much better for taking advantage of worldwide events that might open up new opportunities.
The reason why forex is available 24/5 is the fact that forex transactions are completed directly between parties, instead of using centralized exchanges. Not only that, but foreign currency exchange is something that takes place on a global level.
In other words, even if it is the middle of the night in your region, you can still trade with people on the other side of the world.
One thing that we mentioned is that the forex market doesn't work on weekends. However, this is only true for retail traders, while central banks and organizations they work with still have access to it, even on weekends. This means that forex never really sleeps, despite the fact that regular traders may not have access to it.
2) Low cost
Another thing about forex trading to keep in mind is that it is a rather low cost. This might depend on the broker of your choosing, but most good ones will offer a free trading platform, low spreads, low commissions, free data, available micro-lots, and more, in order to help you keep the money you earn for yourself, instead of spending half of it on various fees and similar expenses.
Rockfort Markets, for example, offers all of these, as well as many other benefits, such as competitive spreads on more than 60 currency pairs, precision when it comes to executing trades, advanced order types, and more — all at very affordable terms.
3) High liquidity
The forex market is easily the most liquid market in the entire trading industry. That means that there are massive numbers of buyers and sellers out there, trying to exchange money at any time of day and night.
According to some data, approximately $5 trillion gets converted every single day, by companies, banks, but also individuals.
While some of this money is converted for other specific purposes, the majority of the activity is simple trading with the intention of making money.
However, this is important for another reason, as high liquidity means that it is quick and easy to complete any transaction. Meanwhile, due to the abundance of money that constantly flows in and out of the markets, transaction costs (spreads) are usually incredibly low.
This can also help you earn even if the currencies you are trading only see minimal changes, as you won't spend all of the money you have earned on fees.
Rockfort Markets offers world-class liquidity, fast fills, deep pools of liquidity, as well as more than 60 currency pairs across the largest of markets.
4) Easy access
Becoming a forex trader is actually incredibly easy. Do not take this the wrong way, however — all we are saying that the act of entering the market is easy. The act of making money through forex trading still requires a lot of research, knowledge of how the market works, understanding and familiarity with trading strategies, and many other aspects.
In other words, forex trading is not simple, but it is easy to get into it, as some brokerages allow you to start an account with only $50.
Of course, such a low amount will not really let you earn thousands of dollars on your first day. At least not unless you trade with leverage, and expose yourself to massive amounts of risk of losing every penny that you are trading with.
5) Trading with leverage
Trading with leverage is something that we briefly mentioned already, and it is definitely an important part of FX trading, so we will not skip it. However, we will advise you not to engage in it, unless you are an experienced trader who knows what they are doing.
When it comes to trading with leverage, it revolves around using a small deposit, which can control a significantly larger total contract value. Basically, leverage allows you to make large profits while risking the minimum amount of money.
Of course, it is not that simple. The higher the leverage, the bigger the reward — if you accurately predicted how prices are going to move, that is. However, the higher leverage also reduces your space for error, and it becomes much easier to lose all of your money.
This is why we recommend that when trading with leverage you use sound risk management and if you are not sure then study and educate yourself on the risk of leverage.
The way it works is pretty simple to grasp. For example, if a broker offers 100x leverage (100:1), and the minimum deposit is $100, that means that you can use your $100 to buy or sell $10,000 worth of currencies. If you decide to go with a higher amount, such as $500, you would be able to trade $50,000 worth of currencies.
This is a good example of how you can potentially earn good money with fairly low amounts of your own money, but keep in mind that with leverage although profits are magnified so too are losses.
6) Going long/short
Another great thing about forex is that you can go long and short with it. Going long means that you bet that the price of some currency will rise, Going short means that you expect it to drop in the foreseeable future.
In other words, you can use forex trading regardless of how the market moves. Best of all, it is fairly easy to go long or short with forex, which is not the case with many other assets.
For example, in order to do this with stocks, you would have to go through extra steps, and actually trade CFDs instead of stocks themselves. The same is true about cryptocurrencies, goods, and alike.
7) Nobody owns the forex market
Another benefit of trading forex is that it cannot be manipulated easily, since nobody owns it. It is simply too big and too full of participants for any single institutional trader to be able to manipulate prices for a long period of time. Even mega-corporations do not have enough money to manipulate the forex market without going broke fairly quickly.
Even if one of them did try something like that, the market would calibrate itself very quickly, and it would level the playing field once more.
Also, the forex market is decentralized, with no middlemen. We mentioned this briefly before — you simply trade against other traders, with no centralized exchanges between you. You do have to use brokers, but they simply function as a gateway that allows you to establish a connection with another trader.
In other words, the forex market is influenced by the economy, and prices change depending on supply and demand, and in some cases, by large geopolitical events,
8) Demo accounts
It is also worth mentioning that forex brokers usually offer demo accounts to their traders. These are basically practice accounts, which use fake money, and are often used for learning how various functionalities work, how new strategies impact your performance, and alike.
You don't make any real profits by trading via demo accounts, but you also don't risk anything, as you do not use real money.
Most brokers offer these accounts, including Rockfort Markets, so you can easily make an account and start practicing very quickly. You can do this by entering a market simulation that will allow you to see what happens based on your actions, and so this is a pretty good way to gain some experience without losing money.
Lastly, one final thing to note about the forex market is that it is much more predictable than other markets or assets. It tends to follow the market trends, including the well-established ones.
With that in mind, forex is also pretty volatile on a smaller scale, and the prices are constantly shifting. While large changes can be predicted, they are relatively rare when compared to the smaller ones, and these are the ones that most day traders use to make profits.
However, with a situation like that, there is not much that can be done to predict how smaller changes are going to go, which is why most of it comes down to reacting to changes, rather than predicting them and then waiting for them to happen. This is as opportunistic as it is risky, so keep that in mind if you decide to start trading forex.
Forex trading is a good way for new traders to start. It has cheap fees, it allows you to enter the market with some fairly low amounts, and it is mostly immune to market or price manipulation. Or, at the very least, it is quick to recover from them.
There are plenty of benefits to it, many of which were listed above, which is why trading forex can be very beneficial if you take a bit of time to research it and familiarize yourself with it.