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.

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