During the last three decades the foreign exchange market, also called FX market, has become the largest market in the entire world, averaging more than USD 5 trillion traded volume a day. The markets are open 24 hours a day, as they follow the various opening times of the different major exchanges in the world. The first to open is Sydney and Tokyo, followed by London and finally by New York in the US. By the time the US markets close the markets on the far-east are open once more.
Until relatively recently the interbank foreign exchange market was not available for the individual investor or speculator. Enormous minimum transaction sizes and strict monetary and compliance requirements ensured that only banks, hedge or investment funds and exceptionally large trading accounts had access to it. These giants of the financial markets could enjoy all the benefits FX trading has to offer, which are among others fantastic liquidity and the predisposition for large currency pairs to move in well-defined channels with an easy to follow trend.
Thankfully, with the dawn of electronic trading and great, trustworthy FX Brokerages like Axitrader, it became possible to access the FX markets for any investor or trader, regardless of their account size.
Advantages of trading on the spot FX market
Forex trading has several key benefits when compared to more traditional forms of trading, such as stocks or futures.
Currency pairs tend to move in a strong, well defined trend
Since the FX markets are always open (apart from a short time period during the weekend) it is relatively hard to manipulate the markets with high-frequency trading algorithms. Compared to any other instrument an FX pair tends to trend in the most predictable way. This is also due to the fact that a currency is affected a lot by its underlying fundamentals. If a currency has a high interest rate compared to another, then it is very likely that there will be more buyers than sellers, pushing the value higher. The foreign exchange market is therefore the best playing field for traders who would like to avoid low volume, trading halts and erratic movements.
Usually no commissions and no hidden fees
It’s not clear for everyone but there is always a bid and ask spread (the difference between the buy and sell price). On traditional exchanges there are certain fees which have to be paid on top of the spread, which can greatly affect the return of a portfolio. A decent brokerage offers its customers great trading conditions and very competitive pricing.
Favorable use of leverage
One of the biggest advantages of trading FX comes with the fact that brokers will offer low margin requirements, or in other words leverage, for their customers. Even a small portfolio has the chance to benefit from market movements since it is possible to use leverage and open a much bigger position than the deposit itself would allow. Careful risk management is obviously required, since leverage is a double edged sword. If the market moves in the opposite direction then it is possible to lose money. With a good strategy and trading plan it is possible however to use this as an advantage.
Market access 24 hours a day
This is one of the more underrated benefits, since most people don’t stay up during the night just to trade the Tokyo session. It is, however a great deal to know that any position can be opened or closed at any time, regardless if its day or night. This is also important for money management reasons, because it is possible to close winners or losers down whenever the target price is met.
Overall, there are many reasons to trade forex, but every trader has to make sure that they familiarize themselves with the type of instrument before they get going. There are great resources on the internet which can help anyone to be more effective with managing their portfolio, and they are encouraged to do so.
