Advantages of Forex

Education

Margin foreign exchange is a contract between two parties agreeing to exchange the differences in the value of a currency between the time at which the position is opened and the time at which it is closed. The main advantage of forex (foreign exchange) is that it is open around the clock 24 hours as day 5 days a week, enabling traders to buy and sell from Sunday night to Friday night and gain access to leverage in order to speculate from global currency flows and news events. Forex is also the largest and most liquid market in the work, making it the last of the few industries where fair market competition and real price discovery exists. Some of the advantages of forex trading are listed here below, find out why forex is fastest growing market in the world.

24 Hour Market

The forex market is open 24 hours 5 days a week. Trading starts when major global financial centres around the world open. The market opens in New Zealand on Sunday evening and ends after the market closes in New York on Friday. The greatest liquidity occurs when multiple time zones overlap.

Liquidity

One of the main benefits of the forex market is its ultimate liquidity. The foreign exchange market is the most liquid market in the world. This is one of the main differentiating factors between the forex market and other financial markets. The foreign exchange market turns over 4 trillion dollars each day. Liquidity is defined by how your assets can be quickly converted to cash without any price discount, making it easy to convert a large sum of money into a foreign currency with little impact on the price.

Accessibility

Generally, the amount required to trade forex is lower than what would be required to enter into other financial markets.

Leverage

Forex is typically traded on leverage. Leverage allows a lower initial outlay that is required to control a larger position. For instance, if a trader had $1,000 in the trading account and had leverage of 100:1 ,the trader would be able to open a position with a value of $100,000. It is however important to note that although leverage gives traders the ability to open larger positions to maximise potential profits, the potential for loss is equally as large.

Trade both Rising and Falling Markets

Unlike equity markets where short selling restrictions apply, there are no restrictions in the forex market as to which direction you can trade. This means that if you believe that a currency pair is going to increase in value, you can buy it or ‘go long’. Similarly, if you believed that the pair was going to decrease in value you could sell it, or ‘go short’.

Low Cost of Trading

The cost per transaction in forex is less than a tenth of the cost of your average stock trade, which means a huge saving.

Transparency

In some exchange based markets, larger players have been known to move stock or commodity in order to gain an advantage. Given the deep liquidity in the foreign exchange market, it is almost impossible to interfere with general market forces.

Volatility

Due to the huge daily volumes of the Forex market, there is always volatility. Increased volatility means more access to trading opportunities. You have the ability to pick currency pairs that suit your trading style. For example, the AUD/NZD is a great currency to begin trading as a beginner due to its lower daily range and low spread, where as the EUR/USD would be better suited for an advanced trader due to its large daily range and the speed with which it moves.

Non standardised contract sizes

Forex is an over the counter market unlike the futures markets. This means that the contract sizes can be determined by the broker rather than an exchange. The Forex traders have no fixed lot size and can trade any amount between 0.01 lots (1 micro lot) and 1,000 lots. This gives trades a greater ability to manage their risk.

Disadvantages

You should allways consider your risk appetite and investment strategy prior to trading leveraged products. Leverage can work for you as well as against you and can magnify profits as well as losses. In the event of a significant move against you, you may loose more than your initial deposit. Further information regarding the benefits and risks can be found in our Product Disclosure Statement.