|The benefits of Forex|
Benefits of FOREX - Why Currencies? - Top 10 Reasons
10. High Liquidity
With a daily trading volume that is more than 40 times larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the FX market. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price.
Because of the lower trade volume, investors in the stock market are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.
The liquidity of the Foreign Exchange market is between $1.5 and $2.0 trillion daily.
Compare the FX market volume to these:
As you can see, the volume of the currency market is overwhelmingly greater than all other markets combined. This liquidity makes it advantageous to trade currencies as opposed to stocks or options.
9. 24 Hours - 6 Days/Week Trading
The Foreign Exchange market is open for trading six days a week, 24 hours per day. This is a major advantage over the stock market, where you are limited to trading during certain hours of the day. This means that you can trade morning, noon, or night. Anytime, is the right time in the currency market. This also allows you to trade when news comes out, without waiting until the morning for the market to open. Because the market does not close during the week, you won't see gaps in price like you do in stocks during after hour trading.
The Forex market begins each day in Sydney, and moves around the world as the market day begins in each financial center, beginning in Tokyo, London, and then New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social, and political events at the time they occur day or night. The markets are open from Sunday afternoon to Friday afternoon.
- Tokyo Opens: 8:00 pm EST
8. Tax Treatment
All gains or losses are treated as a 60/40 split between long and short-term capital gains. More specifically, 60 percent of gains or losses are considered long-term and 40 percent of gains or losses are considered short-term. This can significantly impact your tax liability. Although we do not teach tax strategies, check with your tax advisor to better understand this benefit.
7. No Commissions
It is much more cost efficient to trade currencies, both in terms of commissions and transaction fees. Most FX dealers charge NO commissions or fees whatsoever, other than the spread, while still offering traders access to key market information and trading platforms. Another important point to consider, is the width of the bid/ask spread. Regardless of deal size, currency dealing spreads are normally three to four pips in the major currencies.
6. Trending Market
When you buy a currency position, you are long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means potential exists in both a rising and falling market. The ability to sell currencies without any limitations is another distinct advantage over equity trading. In the US equity markets, it is much more difficult to establish a short position due to the Zero-Up-tick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale.
Remember with currencies:
Trading with certain Forex brokers gives you the ability to trade with up to 400:1 leverage, which substantially exceeds the common 2:1 margin offered by stock brokers. At 400:1, traders post $250 margin for a $100,000 position in the currency market.
While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful, money making tool. Many traders will max out their leverage and take undo risk when using their leverage. This is an easy way to lose your money quickly. Rather than taking this undo risk, you need to exercise caution when using leverage and only risk the amount that you are willing to risk. The most effective way to manage the risk associated with margined trading is to diligently follow a disciplined trading style that consistently uses stop and limit orders. Make sure you are using the TradeSTEPS4x system so your protection is in place to avoid the possibility of emotions disrupting your plan.
Trading in the currency market can be made simpler than trading in any other financial market. Typically, you will find that the fundamental data is easier to interpret and is readily accessible. Calendars of economic reports are available to know exactly when and what government reports are due out. In addition, searching through 15,000 stocks can be a monumental task, but with the currencies, traders are dealing with about six major currency pairs and that's it. Technically speaking, the currency markets tend to trend extremely well, which gives us the ability to trade with the trend even better than in the stock market.
3. Risk Control
When Trading the currency market not only can you control your risk, as with most other markets, but you also have the advantage of instant fills without slippage and guaranteed stops. The risk control with the FX market is above and beyond that of the stock and options markets. This is due, in part, to the extremely high liquidity that allows for such good fills on all orders placed.
2. Minimal Start-up Cost
You can begin trading currencies with as little as $200 and make trades with as little as $25. This allows you to begin trading without the high cost that may be associated with setting up stock accounts. With the high level of margin, this amount of money can allow you to begin building your trading account quickly. In addition, with TradeSTEPS4x, you don't have expensive software or data feeds you need to purchase.
1. High Income Potential
By implementing the correct education, combined with the high amount of leverage, you have the potential to make significant income trading currencies. There are opportunities to make thousands of dollars using $250 in margin, if you have the right training and the right tools.