10. Advantages of trading foreign currencies
Thanks to the advancement of information technology and the ubiquitous use of computers, trading foreign currencies (Foreign exchange, Forex) has become one of the most traded industries in the market. Forex trading’s popularity can be attributed to its own multiple advantages which have attracted a great number of brokers who have been in the business for many years. Investors from all around the world can easily access the information and news of forex.
There are several advantages of Forex trading outlined below:
Advantages of Forex trading
1. The largest financial market in the world
Many players participate in the forex market, including governments and central banks of different countries, banks, international corporations and even individual investors.
As a highly matured market, the forex market offers comprehensive software and hardware packages to facilitate investors of different categories to get themselves involved in FX trading. That’s why the liquidity in the FX market is extremely high.
Statistics showed that the average daily transaction exceeds 6 trillion USD. Investors can look for buyers or sellers to trade with them based on very competitive pricing, with fast execution baring irregular market conditions.
2. Buy (Long Position) and sell (Short Position)
Forex trading allows two-way trading and traders can make money flexibly by longing or shorting foreign currencies. If investors think it is on an uptrend, they can just long (buy) that currency.
Alternatively, if investors think that currency will depreciate, they can just short (sell). There is no ‘bear market’ in forex trading. Forex investors can make money if they accurately predict the trend of a currency.
3. Open and independent forex market
The Forex market maintains its independence because it is of high liquidity and the market involves a large number of participants worldwide. Furthermore, currencies, as global assets, can hardly be manually controlled. There are no big players or corporations can control forex prices. It is also relatively easy for investors to understand highly-transparent news and information involving macroeconomic factors including global inflation rate, monetary policies and geopolitics. At a result, insider news or trading are rare. Also, by conducting research into the trend of the forex market, we are able to know more about key branches of the global economy before investing in other markets.
The benefits of forex trading as compared to stock trading
As a conventional and popular investment method, it is easy for investors to learn about stock trading. However, as a matter of fact, compared to the stock market, the forex market has more to offer:
1. Longer trading hours
The stock exchange is opened for trading only during the normal trading hours of local time zones. This is not comparable to the forex market’s operation of 24 hours and five days a week. Due to the time difference, the Over-The-Counter (OTC) forex market is open for trading (24 hours) to allow investors to enter trades. In other words, they are able to seize better opportunities at any time to trade the currencies.
The exchange rate is the rate for a currency to be converted to another. Even when two countries have gloomy economic prospects.
As long as one has a relative advantage compared to another economy, fluctuations of the exchange rate still provide investors with a chance to make profits with long or short trading. When it comes to stock trading, however, short selling is not that common and maybe not directly available. When the economic environment is not stable, investors usually have fewer opportunities to make profits amid a bearish market.
3. Lower costs
Forex transactions usually do not come with commission charges. Brokers are always providing a free and up-to-date quotation and chart data for the reference of investors.
The transaction cost, also known as “Spread”, is usually very low. The entry barrier of the forex market is also very low. Investors can trade forex with just several hundred USD as a starting capital. In Forex, there is no minimum amount for trading.
Related Article: What is Spread and PIP?
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Risk Warning: The above content is for reference only and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations conducted by this article. Please be firm in your thinking and do the corresponding risk control.