Advantages of the Forex Market

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Advantages of the Forex Market

The forex market is known to be a “trader friendly” market and it is preferred by many investors for several reasons.

Ease of Trades

One of the major reasons for selecting the forex market is that it is loosely regulated, thanks to its huge size and international presence. This means that traders’ work is greatly facilitated by the lack of the many regulations that can be found in the stock or other markets.

When there is a decline or deterioration in the business activity traders can easily sell short. Since currency traders lack the patience of their equity counterparts for the market to correct the prices to their normal level, the eased government intervention greatly facilitates their trades.

Instant Execution of Trades

The FX market provides for the instant and real time execution of trades. This is facilitated by the fact that executable prices are used and no preliminary information about the order’s size is requested. Thus, the time needed to execute a trade is limited to seconds.

Lower Error Rates

Another advantage of the forex market is that it enjoys low error rates. This is caused by the shorter process by which trades are executed on the online forex market. It follows the following three steps:

  1. An order is placed on the platform by the trader.
  2. The order is automatically executed by the FX dealing desk.
  3. An order confirmation is received on the trading station of the trader.

In contrast to the FX market, the order process in the equities market includes the services of middlemen, which can contribute to error occurrence at any stage of the order processing.

Price Transparency

Another advantage of forex markets is the execution of trades at a fair price. In contrast, equities markets try first to determine whether the order comes from a buyer or seller, and then the middlemen try to shade the price so that a profit can come in their pockets. As a result the investor doesn’t get the price s/he wants, but the best price that is available at the moment. This is all evaded in the forex market where slippage is reduced to a minimum.

Lower transaction costs

Another reason for selecting the FX market is that transaction costs are significantly lower or even eliminated. Under the conditions of an online trading you deal directly with the market maker and save money on commissions and other fees. If you are an aggressive short-term day trader, then the forex market is the right place for you. Since transaction costs are saved, your profits will not suffer neither your losses will be expanded if you incur such.

High Leverage

Another reason for selecting forex market trading is the leverage capability that it offers. By using leverage, traders can adjust the risk level to which they are exposed. This is facilitated by the lack of volatility by which the FX market is characterized.

What is more, investors are allowed to put up to $1,000 per lot in order to participate in the market. Under traditional conditions they would have needed as much as $100,000 per lot. As a result traders can maximize profits based on the fluctuations that occur every day on the market.

No Closing Time

Another advantage of the foreign exchange market as a place for trading is that it is available 24 hours. This is especially true for active traders who look for an immediate access to trades that take into consideration the global developments and innovations. As a result traders can plan their day and determine when it starts and ends. This is not the case with equities markets, where an opening and closing time of the trading day is set. Traders on the forex market don’t have to deal with drastic price differences resulting from the closing trading day and the subsequent opening day.

You can harmonize your regular job with your trading activities and enjoy real time executable prices instead of basing your decisions on past performances data (as it is with equities markets, for example).

Bull and Bear Markets Independence

The forex market can be beneficial in both bull and bear markets. This is caused by the fact that trades with different currencies are executed. This means that if you are long one currency you should be short of another. This typically results in earning profits in different market conditions under the proper management disregarding the upward or downward trend of the market.

To Conclude

The FX market is referred to as the largest market in the world. Combined with its high liquidity, traders are ensured that they have access to many investment alternatives. Additionally, it is highly competitive from which investors can further benefit. Trading never ceases as is the case with equities market. So, it is up to the investor if s/he misses a profit not due to the market.