Before delving into the juicy details of what makes Forex so attractive to many, let’s briefly review what Forex really is.
Forex, also known as currency market or foreign exchange market is the “place” where currencies are traded. The main reason why Forex is the largest, most popular and most liquid financial market in the world, is the need for governments, companies and individuals worldwide to exchange currencies.
Although from these first lines some of the reasons why do forex trading transactions? are obvious, let’s start from scratch.
¿Why operate in the financial markets?
Why should someone operate in the financial markets? In any market? In all markets? Or not at all? To have control over your economic future, without limiting yourself to the wealth of your employer or the national economy.
“A basic freedom we have by virtue of living in a capitalist country is that we are free to speculate on the movement of prices.This freedom does not require any additional justification, rather than promoting commercial interests.” All that is needed is that the The general public is not damaged and the market is organized according to fair rules and procedures. “
-The Rosenthal Report circa 1976
Advantages of trading Forex as opposed to other markets
Wake nights with Forex
New York, Tokyo and London … Why does Forex never sleep?
forex never sleeps
Trading transactions in the Forex market never stop because governments, companies and people who require foreign exchange services are spread all over the world. This is also possible because there is no restricted physical place to set opening hours. As these days most of the money in the world is digital, so is the currency exchange. Naturally, the exchange of volumes per currency is at certain times, but in no case is it limited. For example, currency pairs with Japanese yen are more traded when it is daytime in Japan. However, since there is always an opposite currency to complement the pair, the JPY is traded throughout the day (24 hours) with an increase in activity between 00:00 and 08:00 GMT. In the same way, so do the Australian dollar, the New Zealand dollar, the Singapore dollar, the Hong Kong dollar and other currencies of the countries belonging to the Asia-Pacific region, hence the name of the trading session Pacific Asia.
Respectively, European currencies are more exchanged from 8:00 a.m. to 4:00 p.m. GMT – called Europe session (London), and from 4:00 p.m. to 12:00 p.m. GMT is the North American session.
The activity in the forex market basically follows the sun all over the world. At any time of the day or night, you can find an active pair for your purchase.
A word of warning. Just because the forex market never sleeps, does not mean that you do not have to sleep – a tired mind is not good to operate.
In summary, the forex market is open 24 hours a day, 5 and a half days a week. There are no operations during the weekends.
Why would anyone want to trade in Forex instead of other markets? Because people with a full-time job can trade Forex after work, before going to work and on Sunday afternoons.
Long or short
Here is another good reason why Forex is for you. Forex goes both ways.
Let me tell you a little story about Mr. Charles Dow and how things were in his glorious days.
It was late nineteenth century. A specialized news agency, founded by Mr. Dow, Mr. Jones and Mr. Bergeresser, housed a small analysis team in a dark basement on Wall Street. In 1889 the agency printed the first edition of its financial newspaper called The Wall Street Journal. In 1896 the Dow Jones Index was launched.
But what does it measure? In general terms, it shows a weighted average of how the shares of 30 of the largest companies in the public sector in the United States have operated during the last session of the Exchange. It is often used by the media to indicate whether the US economy. It is good or not. However, in Mr Dow’s time the index was less nominal and more indicative due to a simple peculiarity – investors could only invest profitably in one way, buying. Investors only invested in assets that in their opinion, would maintain the value or increase it. Therefore, it seems that the companies whose shares were better traded (rose) did better business.
There was no way to make a profit from the sale of assets that were depreciating. Selling stocks whose value has gone down can prevent further loss.
Let’s advance a century to why Forex traders, who are now able to sell (unlike other financial markets) and obtain a possible profit, are the best of all “?
Forex traders can make money regardless of whether the markets are up or down markets or if they are in circles, whether it is a financial crisis, global warming or XXXX – Forex traders do not care.
Low costs per trading
It is worth mentioning some things in the subject low cost.
First of all, most Forex accounts operate with a minimum commission or no commission and there are no fees for the exchange of currency or data licenses. In the case of the existence of a commission for the agent, they are in the “profit margin of the spread”. If not, the cost of the negotiation is the spread between the purchase price and the sale price, which is always part of the market activity. Therefore, if you think that the USD / JPY spread is not low enough, try to invest in the corn market.
Second, the initial investment goes down.
Do you want an account without a deposit? Get on the internet for half an hour and we guarantee that you will find one. One of the main reasons why the market has grown so much and so fast is that Forex has much less obstacles to enter than any other traditional financial market. As a reference, the Securities and Exchange Commission (SEC) requires that you maintain a minimum of $ 25,000 a day in your account to operate in the stock market. Futures brokers need traders to place margins and maintain an account with a minimum of thousands of dollars to be able to access the market and be allowed to operate in it.
Finally, the software for trading, the analysis tools and even the price quotes are free for the Forex trader, not for the futures or securities trader.
All these necessary things have been paid for by your Forex broker, which is another nice way to say: perform as many operations as your heart can.
Leverage is another reason why you should trade with Forex.
Some forex traders realized how wonderful the financial leverage available to them is, simply because they have never operated in another market. For example, the maximum leverage that brokers offer is 1: 2, while some Forex brokers offer a maximum leverage of 1: 1000! Take a minute to realize that this is the main reason why it is so popular to trade with Forex.
Of course, such a high degree of leverage in Forex trading is another way to attract traders who can not afford an investment of $ 25,000, but it is possible due to the large liquidity available in the forex market.
The high degree of leverage allows a trader with a negligible investment to operate large volumes of currencies and potentially be able to make significant gains from the smallest movements in the market. However, this is also true as regards the possibility of having a significant loss. It is important to understand that a high level of leverage does not make buying and selling operations more risky, but rather, the large volume allowed.
In the hands of a careful and knowledgeable trader, even the most leveraged accounts can be safely operated.
Speaking of liquidity
The infamous liquidity in the currency market is mainly due to international exposure. As the world becomes increasingly global, investors look for opportunities where they can. If you want a general opinion and invest in another country (or sell it in the short term), Forex is an easy way to gain exposure and avoid whims such as foreign exchange rights and financial statements in other languages.
To prevent your mind from filling up with figures that do not mean anything taken out of context, let’s say that there is more money in the foreign exchange market one day than what Japan does in a year. Keep in mind that Japan is the third largest economy in the world. There are always a lot of people doing buying and selling operations, even though most operations are concentrated in a few currencies, for example, approximately 80% of all Forex transactions involve the US dollar. This makes it typically very easy to enter and exit at any time from the operations, even if they are large sizes. So if you think your spread is too big or your operations take too long to execute, you better try the corn market.
Here is a small but crucial comment on why trading with Forex is complicated when it comes to liquidity.
You will hear others talk about liquidity, the interbank market and the size of the foreign exchange market as a non-negotiable advantage. However, these factors are only relevant for the institutional part of the business, but they have little meaning for the retail trader that operates through Forex brokers. If the broker in question is a market maker, its operations remain in its books, as it is the only counterpart and because it never really enters the true interbank market.
Currency exchange, Forex, can be done anywhere in the world where there is an Internet connection. You do not even need broadband.
You can open an account after filling out a simple form and submitting to a rudimentary identity check. That same day you can fund the account and immediately after starting to operate. In truth, anyone wishing to trade in the forex market can do so within 30 to 60 minutes after reading this sentence to the end point.
The disadvantages of the forex market
There are not many disadvantages to carrying out Forex trading transactions, but it is very important to take them into account, as they could potentially outweigh the advantages.
Once again, the Forex market is a decentralized market, which means that in addition to not being located in one place, it is not subject to unilateral regulation either. What makes Forex trading is for retail traders as a journey through the darkness of forests. For them the ray of hope in this trip is the regulation of the country where the legal entity is registered. In the US, the UK, the European Union, Japan, Australia, Cyprus and many other countries there is a government or a semi-governmental organization responsible for licensing financial brokers and keeping them under control.
In general, having a license and adhering to the regulation is as much a source of pride as a commercial hook for the broker. All information is available from the first moment the broker requests it. However, if the broker is an offshore entity, without a license in the country where he carries out part of the business, obtaining a direct response from his representatives could be difficult.
The unexpected turn
The biggest disadvantage of the forex market is that all its profits can easily be canceled by an inexperienced and illiterate trader who can access the market without problems, but who can not distinguish the good from the bad.
The forex market is probably the least refined environment for the trader because it is a very promising market, cheap and so easy to try. The bad reputation of the market precedes it and one of the first things that newcomers wonder is if Forex is a fraud and if it is really possible to make money. If possible! How likely? It totally depends on you and no one else!
Before deciding to trade in the forex market you should carefully consider your investment objectives, level of experience and risk appetite. You must educate yourself, train yourself, invest your time and money, treat it with all the seriousness and pertinent concern and in this way Forex should eventually give you back.
In short, why would anyone want to trade in Forex? Because it is worth trying to carry out financial operations and without doubt to be successful. The Forex market is simply the easiest to understand, but it is far from being the only one. If Forex is not your thing, do not despair, you can try the corn market.