How to be a TRADER Part 3 – The Advantages of Trading Forex

Trading Forex – What are the Advantages and Why should you Trade it?

 

There are lots and lots of advantages to trading Forex. To list them all we would need a new internet, so we will list a few of the main reasons to trade.

  • No Commissions

 

That’s right, no Government fees, no Broker fees, no Exchange fees, and no Clearing fees. But how do the people providing such services make any money you ask?  Well they make their money from something called Bid/Ask/Spread – more on that later.

 

  • No Middlemen

Nobody wants to pay for a Middleman that they don’t need. When you trade the Spot Market you are trading directly with the market behind the prices we see on currency pairs.

 

  • No Fixed Lot Size

In the futures markets, the exchanges decide on the contract sizes (otherwise known as Lot Size.)

A good example would be Silver – a standard contract size for Silver futures is 5,000 ounces. Not everybody can afford to start buying 5,000 ounces of silver. In Spot Forex YOU get to choose the lot size so this means that you can trade whether you have $50 in your account or $500,000.

PAUSE… Just because you CAN trade a $50 account does not mean that you should and that it is safe to do so… but again, more on that later.

 

  • Low Transaction Costs

The cost of a Spot Trading Transaction (bid/ask/spread) is usually less than 0.1% – with larger dealers it could be even lower (we’re talking 0.07%). FANTASTIC! This does depend on how much leverage you use, which is another thing you will be learning about.

 

  • 24 Hour Action

There are no 9-5 rules – When the markets open in Australia on a Monday morning, until the Friday close in New York there is no downtime. That’s right, you can trade whenever you want to, no matter where you are in the world… now THAT’S accessibility.

 

  • No “one-person” can Control or Corner the Market

The Forex market is SO, SO Huge, and has so many participants, that no single entity can control it for an extended period of time… not even Superman!

 

  • Leverage

When trading Forex, a small deposit can actually control a much larger value when it comes to contract, or position size. This means that you can trade amounts larger than the equity you have, meaning that ultimately you can make more money from it.

Let’s take a look at how this works:

So let’s say you are given a leverage of 50-1 on your account and you deposit $50…

With that $50 you could actually buy or sell $2500 worth of currency. Or with $500 you could buy or sell $25,000, and so on and so on. BUT… and there is a big but… Leverage has a major drawdown, and that’s the fact that while you can make more, you can also lose more. If your Risk Management isn’t good, then this leverage can lead to some pretty large losses.

 

  • High Liquidity

Because of the sheer size of the FX (short for Forex) market, this is one hell of a “Liquid” world. That means that under the usual conditions you can instantly buy and sell currencies because generally, if you are looking to buy the EURUSD currency pair, there will generally be someone on the other side looking to sell it. You’re never left hanging in there on a trade that you cannot exit. You can even set specific entry and exit levels.

 

  • Low “Getting Started” costs

Trading Forex does not require a huge amount of equity to get started (unlike Stocks, Options and Futures which can get pricey). Forex brokers generally offer “macro” and “mini” accounts to get you started on smaller equity. Some can be obtained for a deposit as little as $25, maybe even less. This doesn’t mean that you can jump in and start making millions from $100 but it DOES mean that Forex is accessible to all.

 

  • Freebies Galore

Pretty much every broker you come across will offer a free demo account. This enables you to trade pretend money but on real live charts and it doesn’t cost you a penny (or a dime). These are absolutely brilliant for those looking to have a play.

How to be a TRADER Part 2: How Can You Trade Forex?

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So… We already know now that Forex is Great, but did you know there is more than one way to actually trade it?

In this Blog we will take a look at the most common Trading options that you will come across. In particular, we will focus on Forex Spot, Futures, Options and Exchange Traded Funds (otherwise known as ETFs).

The Spot Market

Like the name suggests, in the Spot Market, currency is traded there and then, as in immediately, or “On the Spot”. Lots of traders love the Spot Market because it’s a simple set up, there’s lots of liquidity (meaning trading orders are filled easier), and it operates Monday to Friday/ 24 hours!

It is very easy to take part in the Spot market and you do not need massive funds to get started. Some accounts can be opened for as little as $20 and some even give you no deposit bonuses for opening accounts. Not bad eh?

On top of this those providing the Spot Market (Brokers) very often include various useful tools and research within their offerings.

Futures

Ok so venturing out to the “Not so Simple”, we have the Futures. These are in effect contracts where you agree to buy or sell an asset at a certain price on a certain date. Again, the clue is in the name – “Futures”. Futures have been there since the early 1970’s and were created by the CME (Chicago Mercantile Exchange). When futures started, Flares were still cool.

Being Traded through a centralised exchange, the future market is highly regulated and fairly transparent, meaning the benefit to you in price and transaction information being easy to get hold of.

Options

Ok, so an “Option” can be described as a Financial Instrument where the buyer has the right or the “Option” (A-Haaa see what we did there, again the clue is in the name) to buy or sell an asset at a specified price on the options expiration date. If you SELL an option, then you are obliged to buy or sell an asset at a specific price BEFORE its expiration date. Oh and very much like Futures, Options are also traded on an exchange. Examples of such exchanges are the Chicago Board, the Options Exchange, the International Securities Exchange and the Philadelphia Stock Exchange. The downside to Options is that on some, the market hours aren’t so flexible, and liquidity is far lower than what we see in the Futures and Spot Markets.

Exchange Traded Funds (ETF’s)

ETF’s are the noobies of the world of Forex. An ETF could contain a combination of stocks and some currencies, which to the trader means having a much more diverse set of assets. While being created by Financial Institutions and are very much traded the same way as stocks are, through an exchange. (AHA! I knew there would be another “The clue is in the name”). ETFs do have their limits, in that the market isn’t a 24-hour operation, and on top of this they are subject to cost, I.e. commissions and transactional costs.

 

So that’s it – Several options are available to you when it comes to trading Forex. Whether it’s spot, futures, options or ETF’s, ultimately there will be an option that suits you when choosing a suitable platform to trade.

The Spot Market is generally the most popular, and potentially the best option when starting out as a trader. For those with time on their hands and lots of experience it doesn’t hurt to experiment, but just make sure you don’t experiment with money you can’t afford to lose.

In the next blog we will take a look at the Advantages of Forex trading and show you why you should investigate the arena further to give it a go.

How to be a TRADER

All too often, educators market some “killer strategy” and blast it out to the market… however its easy to forget that not everybody knows what Forex is, and how it even works.

Therefore, from tomorrow, I will be posting a daily blog. This blog will take you from the VERY basics of what Forex is and how is works, so that the courses and solutions we offer can be accessible to anyone, even as complete noobie.

SO strap yourselves in, and look out for the How to be a Trader series, starting tomorrow!

Best Regards, Ben

The Part Time Trader

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The new site went live yesterday, and with it the relaunch of The Part Time Trader, my Forex educational course aimed at those people who don’t have all the time in the world to trade. It’s part time, literally a few minutes a week preparation and running on an MT4 platform. It’s all about Keeping Things Simple and staying away from news events, technical indicators, patterns and everything else that Technical Analysis and the traditional trading world teaches you to follow.

Take a look at my page about the course by using the links here in this post, and let me know what you think. The first 30 purchasers this month get 20% off using the discount code PTT20OFF