6 Important Advantages of Forex Trading Over Other Investments

6 Important Advantages of Forex Trading Over Other Investments

There are many characteristics that make forex trading preferable to trading stocks or futures contracts, such as:

1. Low Margin

Just like speculating on stocks and futures, a forex trader has the flexibility to regulate an outsized amount of cash just by making alittle amount of margin. However, margin requirements in futures trading range around 5% of the overall value of the contract or 50% of the whole value of the shares, while margin requirements in forex can range around 1%. as an example, the margin required to trade each contract of $100,000 is $1,000 only. this suggests that with forex trading, a currency trader can play about five times the worth of the merchandise he trades as a futures trader or 50 times as a trader. When trading using margin this may be a profitable thanks to make an investment strategy but it’s important that you just take the time to know the risks involved additionally. you want to confirm that you simply fully understand how the brokerage account works. Therefore, it’s best to create sure that you simply read the margin agreement concluded between you and also the clearing company that you simply cater to. you will also wish to talk to your account manager if you would like to ask any questions regarding this matter.

The trading positions that you simply open in your account is also fully or partially liquidated within the event that the available margin in your account falls below a predetermined level, but you’ll not actually get a call before liquidating your trading positions. For this reason, you must constantly monitor the margin balance and also use stop-loss orders for every trading position you open so as to cut back the downside risk.

2. No Commission and no Exchange Fees

When you trade futures contracts, you need to pay a fee for brokerage and swap services. Forex trading is characterized by being commission-free, which is extremely beneficial for you. Currency trading could be a global interbank market that enables buyers and sellers to transact instantly.

Although you are doing not need to pay a commission to the broker to permit you to complete your transactions, the spread is sometimes over what’s found within the commodity exchange. for instance, if you’re trading the USD/JPY you will find that the spread in forex trading is around 3 pips (equivalent to $30). Whereas once you trade JPY futures the spread are going to be around 1 pip (equal to $10) but you’ll also pay commission fees to the broker on top of this. This commission may range from $10 within the case of basic commission services, and will reach $50 if you obtain integrated trading services. Despite this, the important cost when calculating it must be inclusive of of these things. you may need to compare the commissions that you simply pays to trade forex on the net with futures contracts to work out what area will cost you more.

3. Limited Risk and Guaranteed Stops

When you trade futures contracts, your risk might not be limited. for instance, you will have thought that live cattle prices would continue their upward trend in December 2003, before the outbreak of mad cow disease in American cattle. This led to a dramatic call livestock prices, which pushed their prices to say no regularly for several days. during this case you’ll not have the power to exit the position and so this case may wipe out your entire account balance. Moreover, if the worth continues to say no, you’ll be forced to search out more funds to catch up on the deficit in your trading account.

4. Rotation of Trading Positions

When the derivative expires, you must plan whether to roll your trades. Forex trading positions expire every two days and you’ll be able to rotate each position as soon as you allow it open.

5. The Market operates 24 Hours Every Day

With futures contracts, you’re limited to trading only within the few hours that the market is open a day. If any important news comes out when the markets are closed, you’ll not find the way to require advantage of this before the market reopens, which might happen after several hours. On the contrary, we’ll find that the forex market is open 24 hours daily, five days per week. The trading session begins in ny so follows the movement of the sun round the world from Europe to Asia and Australia before returning to the us again. you’ll trade anytime you would like between Monday and Friday.

6. A Free Market

Currency trading is maybe the most important financial market within the world, with a median daily turnover of about $1.4 trillion per day. This value represents 46 times the trading value of all futures markets combined! With the presence of this huge number of people who trade currencies round the world, it might be very difficult even for governments to manage the worth of their currency.

Developed by DevoZon