Forex trading has grown immensely in popularity over the past decade because it offers traders several distinct advantages compared to trading other markets.
24 hour trading
The forex market doesn’t sleep. Forex markets are open 24 hours a day. This means there is no sitting around waiting for the bell to indicate that trading has begun. From Monday morning open in Australia, through to Friday afternoon close in New York, forex markets are open. This provides you the trader a huge amount of flexibility with trading. It is particularly useful for those who trade part time, alongside another job, or as a hobby around your working hours. You can choose the hours you want to trade be that morning, noon or night.
Leverage
When trading forex you do it on leverage. This means that you can actually trade a position which is a much larger total contract value than what you have available in your account. This means that you are able to make healthy gains without putting too much risk capital up front.
For example: leverage of 50 – 1 means that with just $50 used as margin, you would be buying or selling equivalent to $2500 worth of currency. In the same way with $500 you could trade a position of $25,000 worth of currency. However, it is worth being aware that this also means you can also make large losses from a relatively small deposit, so risk management is essential!!
Low barrier to entry
Some people think that to start trading currencies you need to have lots of money. That is not true. Most online forex broker nowadays offer their clients mini and micro lots, in addition to the more traditional lot. Furthermore, some brokers stipulate a minimum deposit of just $25.
Personally, I think you actually need to put more than $25 into your account because that barely gives your trade room to move. But the point is actually need much less that you probably think. This means that forex trading is actually very accessible and even those who don’t have a lot of money to put into their forex account, can still get started.
High Liquidity
The forex market is the largest market in the world, which means it is also extremely liquid. So why is this useful? When a market is liquid it means that when you click to buy or sell a trade, that trade will go through almost instantaneously at the price that you requested. There will almost certainly be someone else in the market who is willing to take the other side to your trade, i.e. buy at the price you want to sell or sell at the price you want to buy. This essentially means that you should never find yourself in a trade you can’t get out of, because there is no seller or buyer. Furthermore, given the liquidity you are even able to set orders to open and or close positions helping you to trade when you are not even watching the markets.