Forex trading provides the opportunity for traders around the world to profit by exchanging various currencies. It’s a great way to make passive or active income and diversify your portfolio. The forex market is the largest financial market but this isn’t the only advantage it affords you. There are other benefits to forex trading, so keep reading to learn about them in detail.
5 Benefits of Forex Trading
1. High Leverage
Unlike other financial assets, the forex financial market provides high leverage to help traders maximize the purchasing power of their capital. Leveraged trading helps you control larger funds with little capital, by increasing the buying power of your deposited funds. Unlike stockbrokers, forex brokers can offer leverage of up to 100:1. This means that every $1 you deposit has a purchasing power of $100.
High leverage is a benefit of trading foreign exchange because it reduces the capital requirements and allows you to start trading with any amount of capital you’re willing to invest. It also ensures that you maximise the trading opportunities available and easily compound your capital over time.
2. Low Transaction Cost
While trading in the foreign exchange market, the cost of transactions is low compared to other financial assets. Most traders only have to pay for the spreads and commission charged by the broker.
The spread is the difference between the bid & ask prices. This value varies depending on the liquidity of the currency pair and the trading session. Some brokers offer fixed spreads to help traders properly estimate their risk per trade.
Commissions are fees charged by a broker for opening and closing your trade. These are usually low and often less than 1% of the trade position.
Fortunately, some brokers offer zero spread accounts, while others charge no commissions. These conditions make the foreign exchange market a great trading environment with the lowest fees across all financial assets.
3. High Liquidity and Volatility
The currency market is highly liquid and volatile. It refers to the ease with which an asset can be exchanged. The numerous participants in the forex market increase its liquidity and make it easier to buy or sell currencies because, at any point in time, there would be a counterparty to your trade. This means whenever you’re ready to buy, there is someone around the world who is ready to sell. The major currency pairs are the most liquid because they contain the US dollar, which is a highly traded currency.
The forex market volatility is due to the influence of large trade orders by banks and financial institutions. It’s also a result of the news and economic data released daily. News releases cause reactions and price fluctuations as the supply and demand for a currency change because of the news reports and market sentiment.
4. Great Profit Potential
The currency market has an enormous profit potential due to the high risk to reward trades and high leverage provided. The leverage provides the ability to control large capital with little funds and this allows investors to compound their capital quickly.
The trading opportunities are limitless with over 50 currency pairs to choose from. Trading in forex also provides access to 24-hour trading since the major trading sessions overlap. This makes it possible to take advantage of trading opportunities all day long. If you’re reading with automated software, you can make profits while you sleep because the forex robot can keep scanning the charts for trading opportunities.
Learning to read charts, and in particular candlestick patterns (ßanchor text), gives traders an insight into the most probable future market moves. Traders can use this to get an edge in trading, which, combined with a well-managed risk strategy, can lead to a profitable trading portfolio.
Compounding little profit over time leads to huge returns and allows you to diversify your trading and investment portfolio with ease.
5. Availability of Learning Resources
Since the forex market is widely traded, the trading tools and resources that you need to get started and succeed are readily available. From trading robots to profitable strategies, you can find a variety of resources to help you improve your trading skills and results.
If you’re just starting to trade, you can learn basic to advanced trading concepts via free or paid trading courses, video lessons, or ebooks. Countless forex trading strategies have been tested and confirmed to be profitable. You can learn one of these and get started the right way. Other less traded financial assets may be difficult to trade due to the lack of resources and trading tools.