Okay, so you want to become a forex trader, but you keep hearing about other lucrative possibilities. This isn’t surprising, because the trading community is a close-knit one, and many traders do not pick only one market to trade, but instead trade many markets simultaneously, or move in and out of certain markets depending on their own theories, market cycles, or seasons. However, there are some great advantages to trading forex. Let’s review some of them!
First and foremost, there are low fees. This can be a huge plus to people. Believe it or not, fees add up. If you are someone in the stock market who is a daytrader; you might literally make tens of thousands of trades a year. It doesn’t matter who you are or what your financial position is – those trades add up. At a couple of bucks or more, there is no doubt that it’s a substantial amount of money that could have gone to your bills, hobbies, or even a family vacation! Luckily, with forex trading, you never have to worry about pesky exchange fees, brokerage fees, commissions, etc. This can give certain investors and traders a peace of mind and be the attribute that convinces them that forex is the market for them.
In futures markets, the contract sizes are often determined by the exchanges. However, in forex, the trader has more autonomy when it comes to their position size. This allows for more freedom for the trader. Additionally, the low transaction costs, in ADDITION to the fact that there are no fees – and you might see why so many people choose forex markets over others.
The bid/ask spread is normally pretty tight, which means that the market is very liquid, which appeals to investors worldwide.
It is also true that one can leverage much more when it comes to forex. It should be noted that this strategy only works when it is used with proper risk management. Forex traders do allow traders to trade several times more than what they have, with margin deposits. However, one must be very careful when it comes to leveraging large quantities. For example, a trader leveraging 50-to-1 would be able to buy or sell $2500 worth of currencies with only $50. This could end up becoming extremely risky, which is why one should be very careful when it comes to leverage. However, for those who manage risks properly, this could be a beautiful and profitable feature.
One of the big criticisms about the penny stock market, for example, is the lack of liquidity. You will also find this when it comes to small-cap companies. The truth is that sometimes there is simply not enough interest or information about the company to induce much buying pressure. This also means that when it comes time to exit a position, it can be difficult, since investors are not scrambling over one another to grab up shares. The great thing about forex is how liquid it is – because of the size of the market, there is ALWAYS a buyer, so you don’t have to worry about selling at a very steep loss in many cases, like you might in the stock market. This is ideal for those who aren’t a fan of taking too much risk.
Another great aspect about forex is you don’t need to be some rich executive or hotshot to jump in the market. Many people know that in the stock market, so much of the wealth is created by people who already HAVE wealth. Forex doesn’t have this high barrier of entry, and those with less sums of money can actually accumulate wealth slowly and steadily, and there is no need to enter the market with a massive amount of cash in order to be successful. For many people, this can be rewarding and refreshing. Of course, this isn’t to suggest that you can start off with a dollar and become a millionaire overnight, but it certainly can prove to be much more rewarding than other markets for those who aren’t planning on jumping in with lots of money. There are also no large obstacles to short-selling, which might appeal to many who see short opportunities, but do not feel as though it is as rewarding in the stock market.
Lastly, it should be noted that the forex market is very welcoming to newbies! That’s right, they offer FREE demo accounts in many cases, which can help traders hone their skills and gain interest as they develop their own strategy. This might certainly be appealing to those who feel like trading with paper money before actually risking their real finances.