One of the most attractive ways to strike it rich is to play the stock market. With the advent of the internet and online brokers, traders have seemingly unlimited access to a variety of trading products that were reserved for large financial institutions just 10 years ago. One trading product that is overlooked by many traders is forex.
Forex is derived from the words FOReign EXchange and involves the buying and selling of currencies. Until relatively recently forex trading was under the protection of banks and other large financial institutions. In the last 5 years forex trading has exploded among ordinary traders. This is not surprising when the advantages of forex trading are revealed. The forex market is the largest financial market in the world with an estimated daily turnover of $1.5 trillion. This is 30 times larger than all US stock markets combined. Moreover, the forex market is open 24 hours a day, 5 days a week.
The size of the forex market is one of its first benefits. The forex market is very liquid and has a high volume. Liquidity is a great asset that many traders look for because it means that a deal can be done at any time. Forex is a 24-hour non-stop market. This is very desirable if you want to trade part-time as you can choose when to trade, unlike exchanges that are only open 8 hours a day. This 24-hour market virtually eliminates the problem of gaps. Since most exchanges are only open 8 hours a day, events that usually occur at night can cause stocks to gap up or down. Large gaps can cause huge losses, especially for those who trade derivatives such as futures or options. In the Forex market, the problem of gaps is much reduced.
Currencies are always traded in pairs. Usually, currencies are traded in pairs against the US dollar. The main pairs are US Dollar Vs EURO (EUR), British Pound (GBP), Swiss Franc (CHF), Japanese Yen (JPY), Australian Dollar (AUS), New Zealand Dollar (NZD), and Canadian Dollar (CAD). There are other currency pairs but most traders prefer to trade the above pairs. These currency pairs are known as majors. Currency traders have numerous trading opportunities from these 7 major currency pairs. Compare this to the stock market where over 8,000 stocks are traded on the three main US exchanges and currency traders can focus on just these 7 pairs and still make plenty of money.
Unlike the stock market, there are never bullish or bearish market conditions. Currencies go up or down against each other according to how the world financial markets perceive the value of the currencies. You can sell a currency (go short) as easily as you can buy a currency (go long). Currencies go up and down and you can easily trade in either direction so there are always plenty of trading opportunities.
Forex brokers do not charge commissions or brokerage fees. This can be quite a big overhead in other financial markets. Forex brokers make their money on the difference between the bid/ask spread of a currency pair. Because the forex market is very liquid, the difference between bid/ask is very small. As many stock traders know, the brokerage can be a significant transaction cost.
You can start forex trading for as little as 300 dollars. There are two types of accounts, the mini forex account, and the regular forex account. Most forex brokers offer 100:1 leverage, which means you can control a $10,000 currency position with $100 on a mini account. On a regular account, $1000 controls a currency position of $100,000. This provides great leverage and extremely efficient use of trading capital.
Trading with a mini account is a great way to learn how to trade forex. When you paper trades you get a comfortable armchair ride. You trade without the emotions of putting real money on the table. When you trade with 1 mini currency lot, you can set your stop loss so that the most you will lose is $100. This is a great way to learn how to trade effectively without risking too much money. With most other trading products, you have to risk a lot more even when trading with the smallest possible trading lot. Forex provides trading opportunities for people without a lot of trading capital.
Many traders have overlooked forex trading. They all have many benefits
that traders can use to their advantage. It offers the advantage of trading 24 hours a day in any country in the world. The Forex market is very lucrative, no trader can afford to ignore it.