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Trade advantages in the Forex market

Trade advantages in the Forex market

Historically, the Forex market was mainly available to banks, multinationals, and other participants who were trading large volumes. Small retail traders like you and me have had limited access to this market for an extended period of time. Now, with the development of technology and the Internet, Forex trading has become one of the investment alternatives that are increasingly popular with the general public.

Advantages of trading in the Forex market:

It is open 24 hours and closes only on weekends;

Efficient and highly liquid;

Very fickle;

Very low transaction costs;

You can use a high level of leverage (borrowed money) with ease;

You can win, whether the market is up or down.

Trade continues 24 hours

The foreign exchange market remains open 24 hours a day. You can trade after returning home from work. Regardless of the time frame you want to trade on and whatever time you trade from today, you will always find enough sellers and buyers to play the role of the counterparty in your deals. This feature available in this market will give you enough flexibility to manage your trading activity within your daily routine.

Liuidity and efficiency

When there are a large number of sellers and buyers, you can expect to buy and sell at a price very close to the current market price. The currency market is the most liquid market in the world, as trading volumes range from 50 to 100 times the trading volume on the New York Stock Exchange (source: Oanda).

If you are trading in stocks, you may have encountered some situations in which a news release leads to an increase or decrease in the basic share price that you may have purchased before. It is possible that the director of the company was dismissed by the shareholders or that the company launched a new product and therefore the big investors started buying the shares of this company. Stock prices can be greatly affected by the actions or reactions of one or more individuals. Therefore, if you rely on televised reports and newspapers to obtain news, most opportunities and warnings will arrive late, which will not allow you to benefit from them.

On the other hand, the value of currencies is influenced by many factors, and with the presence of this huge number of participants, the probability that an individual or group of individuals will significantly affect the value of the currency will not exceed one minute. Given its sheer size, the currency market is difficult to manipulate. The ability of people to plan ‘internal trade’ is almost nonexistent. Thus, as a regular trader, you are not negatively affected significantly. Rather, it can be said that you are playing on a relatively equal footing in parallel with other traders and investors you compete with.

A note about price gaps:

For those who have traded in financial markets before, they may have heard about price ‘gaps’. ‘Gaps’ arise when prices “jump” from one level to another without taking gradual steps to reach it. For example, one of the stocks that closed at $ 10 at the end of trading today may be trading, but due to some events that appeared at night, tomorrow’s trading my open at $ 5 and continue falling for the rest of the day.

Gaps bring another degree of uncertainty that may interfere with a trader’s strategy. Perhaps one of the most worrisome aspects is when a trader uses stop loss orders. In this case, if the trader puts the stop-loss order at $ 7 because he does not want to continue in the deal if the share price reaches this level, though, his deal will remain open during the night and thus when he wakes up the next day he will find himself carrying a greater loss than that He was ready for it.

When looking at some Forex charts, you will realize that there are few price gaps or you may not find any of them at all, especially on long-term time frames such as 3-hour, 4-hour, or daily.

 

Volatility

Trading opportunities exist when prices fluctuate. If you bought the share price at $ 2 and the stock remains at this level, there is no opportunity to make profits. The magnitude, level, and frequency of oscillation is what is called volatility. As a trader, volatility is what you will gain from. Exchanges of large volumes and high volatility in parallel with the limited circulation of financial assets create greater daily trading opportunities in the currency market that can be exploited by day traders. The large fluctuations in the currency market indicate that a trader can earn more than five times more in currency trading than he can achieve with the most liquid stocks 

Volatility is a measure of the maximum return a trader can achieve with correct forecasting. The degree of volatility with the most liquid stocks was between 60 and 100. Fluctuations in currency trading are around 500. (Source: Oanda)

In this regard, for daily traders, currencies are a much better way of trading than stock markets.

Low transaction costs

Forex trading usually does not involve any commissions or swap fees. For a Forex trader, spreads are the only cost to be incurred when opening a position. In addition, due to the efficiency of the commission market, there are only minimal costs for the so-called ‘price slide’ or they may not be present at all.

A ‘price slide’ is the cost to the trader when he enters the market at a price worse than the level he wanted to enter. For example, a trader may want to buy the stock at a price of $ 2, but over time the trading order is executed, but at a price of $ 2.5 a share. This fifty cent difference is what the price slippage incurs.

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