When choosing which market to invest in, traders look for optimal trading conditions and the best chance of making a profit. Millions of traders around worldwide choose the forex market because they believe it meets these criteria. If you are wondering why you should trade Forex, here are the top benefits that will drag you into the world of the currency exchange market.
Exceptional liquidity of the forex market
Forex is the most liquid financial market. It is more than a good reason why you should trade Forex. That’s also why everyone is doing Forex today or is planning to do it. It means that there will always be an investor looking to make a trade at all times. Every day, the FX market experiences a volume of transactions estimated at more than 5,000 billion dollars. This is carried out by individuals, companies, and banks, to generate profits.
Forex’s high liquidity means that trades can be closed quickly and easily, so transaction fees (or spreads) are often very low. It opens up opportunities for traders who can then speculate on price movements of only a few pips.
Volatile market condition
The second good reason why you should trade the foreign exchange market is the high volume of daily currency transactions, estimated in the billions traded every minute, making the price movements of some currencies extremely volatile. Huge profits are potentially achievable by speculating on price movements in both directions.
Possibility to leverage your money
Leverage is one of the main characteristics of currency trading and the reason why you should trade forex. It means that you only have to initially deposit a small amount, called a margin, to initiate a trade.
Margin trading can mean more efficient use of your capital. This is because you only have to hedge the total value’s percentage of your position while maintaining a similar level of exposure. It implies that you increase your potential profit if the market moves in your favor.
Diversification of assets portfolio
Just recall the financial crisis from 2008 when turbulent and unpredictable stock markets were to difficult to trade. Forex trading should be a separate class of assets since it gives different opportunities to make profits compared to stock markets. You can trade currency pairs primarily, but also the currency in the form of various assets such as futures contracts, crude oil, options, and forwards.
Forex hedging protects your trading position
Hedging is a method that one can apply to mitigate the risk of undesirable currency movements by opening several strategic positions. Volatility makes the Forex market very attractive. However, hedging can be an excellent way to mitigate losses or limit them to a specific amount.
Various hedging strategies can be used with Forex, but hedging with multiple currency pairs is one of the most common. By choosing pairs in a positive correlation, such as GBP / USD and EUR / USD, opening positions in opposite directions can limit your downside risk. For example, a loss on a short position in EUR / USD could be mitigated by a long position in GBP / USD.
Alternatively, you can use Forex to hedge against losses in other markets, such as commodities. For example, the USD / CAD pair generally has an opposite trend to that of crude oil and is commonly used as a hedge against falling oil prices.
You can trade 24 hours a day, five days in a week
Last but not least, as a reason why invest in Forex is that the currency market is open from 10 p.m. Sunday to 11 p.m. Friday non-stop. Transactions take place directly between two parties over-the-counter (or OTC), rather than on stock exchanges. That explains the extended operating hours of the Forex market. And you will always benefit from the different trading hours of the active forex sessions as the currency market is global.
Forex is a perfect asset class to start learning to trade
If you want to learn and practice risk-free trading, there are numerous Forex platforms offering demo accounts. There is a range of trading platforms available online, apps for mobiles and tablets, as well as advanced platforms for those who wish to take trading to the next level. With them, you can enhance your skills until you achieve enough confidence to start trade seriously.
Using demo accounts you will also have access to many tools such as real-time data, as well as the latest analysis from experts. All these demo accounts are for free so even if you dispose of a limited budget, honing your trading skills is at your fingertips.
The importance of Forex trading
The importance of the Forex market lies in its various purposes. It’s shaping micro and macroeconomic conditions in a country. It prevents large manipulation of rates by some states.
Nevertheless, Forex will operate regardless of investors’ participation in the market. And this is the main difference between equity markets and currency market: the first has a focus on procuring capital to investors and speculators, while the latter is more independent regarding investors’ participation in trading. Thus, the Forex market is vital to overseas traders when managing foreign currency risk.
Forex is a large playing field for everyone who wants to try new investments. It’s accessible, cost-effective, and flexible in terms that you choose tour trading style, trading time, and account size. There is no easier way to learn to trade and start making profits at the same time.