The foreign exchange market, also known as the forex market, is the largest financial market in the world. It’s also one of the easiest markets for novice traders to navigate, but what makes it such an enticing investment option?
Forex trading promotes a fair and competitive market. It’s an even playing field, and there are multiple benefits that drive investors to trade an average of $6.6 trillion on a daily basis. Read on to find out six reasons why forex trading is gaining popularity at such a rapid rate.
Flexibility
The forex market is open 24 hours a day except for weekends. This makes it easily accessible for absolutely anyone, no matter what time it is or where you are in the world. All you need is a digital device and an online connection, and you’re good to go.
Additionally, the forex market operates on a decentralized network, so there are no trading offices to go to, commission fees are low due to high competition, and various types of trades can be executed instantly.
From spots and swaps to futures and options, all trades are designed with the efficiency of exchange in mind. There are over a dozen major currency pairs to choose from, and each currency is susceptible to constant value fluctuations.
High liquidity
Because trillions of dollars worth of trades are happening every day, assets traded on the market need to possess high liquidity. While this does make trading risky to some degree, it also provides the opportunity for rapid returns with high margins.
The high volume, high liquidity nature of forex lends itself to short-term strategies well. However, if you know which economic and political factors to look out for, the market is predictable enough to allow for long-term investments.
Unlike spot trading and maturing investments, forex provides the opportunity to engage in in-and-out trading, meaning that you can enter and exit the market whenever it suits you most, regardless of how big or small your investment may be.
Leveraged positions
When it comes to speculative investments, being able to leverage your position is critical for maximum profit margins. Essentially, leverage allows you to open a position for a larger amount than your initial investment.
When currencies move in your favor, you can gain significant profit with a comparatively small amount of money. However, this also means that your risk of loss is amplified to the same degree.
It’s important to keep in mind that leverage affects not only profit margin, but loss margin too. You’ll need to have firm confidence in your trading skills before you attempt leveraged positions, but they’re definitely worth it when you know what you’re doing.
Low-cost entry
Most traditional investment strategies require a significant amount of starting capital, or they offer a low rate of return over a longer period of time. Forex trading, on the other hand, has no such limitations.
Traders can get started with as little as $100, but there’s no limit to how high you can go other than how much you’re willing to invest. Some brokers offer first-time trades for as little as $25, even though the potential profit isn’t really worth it in such small amounts.
Alternatively, you could always open a trial account before you put any of your own money on the line. Most brokers offer demo accounts for first-time traders, allowing beginners to explore forex trading without putting their finances at risk.
Tools for success
Nowadays, thanks to several different technologies, traders have an unprecedented level of access to information, allowing for complete control over their investments through informed decision-making.
Whether it’s online trading platforms or analytics tools, every technology related to forex is designed to make trading easier for the average trader. Not only does this give you valuable insight, but it also speeds up the process of buying and selling currencies.
All the information you need is available at the touch of a button, and there are even programs that will complete your trades for you. Such a high level of control was unheard of less than a decade ago, showing how rapidly technology has developed in recent years.
Volatility
An extensive range of factors can affect the value of any given currency, from major news events to economic factors like inflation, productivity, and the balance of trade levels across countries.
Combine such an eclectic variety of influential factors with the highest volume of trade in the world, and it’s easy to see why forex is well-known for being one of the most volatile markets.
Even though you have to keep a careful eye on any open trades you have, this high volatility allows for instantaneous trades and the ability to make a quick profit. The only drawback is that trades can always go either way, but that’s the nature of any speculative investment.
