Unlike the equity markets, with FX there are no restrictions on short selling. Profit potential exists in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. This means a trader has an equal potential to profit in a rising or falling market.
Superior market liquidity
With $ 1.5 trillion trading hands daily, the FX market is also extremely liquid. This means that with a click of a mouse you can instantaneously buy and sell at will. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. You are never 'stuck' in a trade. You can even set the online trading platform to automatically close your position at your desired profit level (limit order), and/or close a trade if a trade is going against you (stop order).
More leverage than trading stocks
In stocks, for every $ 1,000 cash
you invest, you control a maximum of $ 2,000 worth of stocks. The maximum
leverage is 2:1. But with forex
, if you invest $ 1,000 margin on a foreign currency trade,
you can control up to $ 100,000 in currencies. Leverage gives the trader
the ability to make extraordinary profits and at the same time keep
risk capital to a minimum.
Trade on Mini-Accounts with as little as $ 300
Many brokerages do not allow you to invest in odd lots, but only in blocks of 100 shares at a time. With many stocks valued at between $ 30 and $ 200, that can mean an investment of $ 3,000 to $ 20,000 or more. But you can invest in foreign currencies for as little as a $ 300 deposit with mini-contracts. The smaller trade size enables you to take smaller risks. Mini-accounts are intended to introduce you to the excitement of currency trading while minimizing your risk. You can try out the demo account and paper trade or you can open up a mini-account right now and trade for real.
is perfect for technical traders
The strong trends that foreign currencies develop are a significant advantage for technical traders. Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. A technically trained trader can easily identify new trends and breakouts, which provide multiple opportunities to enter and exit positions.
Analyzing countries is easier than companies
Countries are often more stable than companies and it's easier to predict their overall economic direction. Currencies are traded in pairs, so if a trader buys one currency, he is simultaneously selling the other. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade should be most-closely examined.
No commission fees or exchange fees
In the forex
market there are no charges, commission or exchange fees
to trade currencies online or on the phone. In the equity markets, you
must pay both a commission and exchange fees. The over-the-counter structure
of the FX market eliminates exchange and clearing fees, which in turn
lowers transaction costs. Costs are further reduced by the efficiencies
created by a purely electronic marketplace that allows clients to deal
directly with the market maker, eliminating both ticket costs and middlemen.
Because the currency market offers round-the-clock liquidity, you receive
tight, competitive spreads both intra-day and night. Stock traders can
be more vulnerable to liquidity risk and typically receive wider trading
spreads, especially during after-hours trading.
Uncorrelated to the stock market
A trade in the forex
market involves selling or buying one currency against another.
Thus, there is no correlation between the foreign currency market and
the stock market. A bull market or a bear market for a currency is defined
in terms of the outlook for its relative value against other currencies.
If the outlook is positive, we have a bull market in which a trader
profits by buying the currency against other currencies. Conversely,
if the outlook is pessimistic, we have a bull market for other currencies
and traders take profits by selling the currency against other currencies.
In either case, there is always a good market trading opportunity for
The backbone of the forex
market consists of a global network of dealers. They are
mainly major commercial banks that communicate and trade with one another
and with their clients through electronic networks and telephones. There
are no organized exchanges to serves a central location to facilitate
transactions the way the New York Stock Exchange serves the equity markets.
market operates in a manner similar to the way the NASDAQ
market in the United States operates, thus it is also referred to as
an over-the-counter (OTC) market.
No one can corner the market
market is so vast and has so many participants that no single
entity, not even a central bank, can control the market price for an
extended period of time. Even interventions by mighty central banks
are becoming increasingly ineffectual and short lived.
Now lets compare the Forex
Market VS Futures Market click here.