More and more people have joined the happy Forex family in recent years, well, more than a happy family is a wild jungle inhabited by ferocious predators, smart hunters and weak preys (you don't want to be the last!). In this article you will see why you should trade in the Forex Market and why it has become so popular. We will also see some of the differences that makes Forex Trading VS Stocks Trading such a hard challenge.
Some people decide to trade Forex to diversify their investment portfolio. Diversify is in fact one of the first rules in wealth management. Investments must be distributed between different markets, stocks, assets, income sources, to achieve a mixed portfolio with limited risks and optimal return. Other people approach stock and currency markets driven by the thrill trading gives. Trading can be considered by some as gambling, no trade has a secure outcome indeed, and is the excitement of the risk that attracts some traders. There are then other individuals who just love Forex, they are passionate about it and they make it a hobby, a part-time job to generate a second income, or even a full time profession.
What is attracting so many to currency trading? Why Forex has become so popular? Why traders often prefer Forex to other markets?
Forex has some significant advantages over other markets, especially for beginners and people not familiar with trading. I listed the 10 most important reasons that induce people start trading Forex.
The Forex Market never sleeps, almost. While the stock market is tied to business hours in the country where a stock is traded, currencies work differently. The Foreign Exchange opens Monday morning in Sydney and closes Friday afternoon in New York, usually keeping New Year's Day as the only holiday throughout the year. Having the market open for so long during the week allows more people to trade, regardless of the time zone where someone is located, the trader has the flexibility to choose when to trade, morning, afternoon, evening, night, and there will be always some opportunity to catch.
I could say that there are no commissions but that would not be totally correct. As any other type of investment there is some kind of commission to pay in order to trade, in the Foreign Exchange market the commissions are paid with the spread, that is a small difference between the buy and sell price. Opening a trading account is usually free, there are no periodic fees and the cost to deposit/withdraw is reasonable. Compared to other investment method commissions are definitely lower in Forex.
Forex Trading doesn't require a huge capital. You can open an account with as little as 100$ or less, but realistically I wouldn't recommend that. Technically it is possible for a trader to buy/sell currencies with a value of only a few dollars and this opens the door to the market to many people with limited investment capital.
Leverage is the ability to control a trading capital higher than your trading account and in Forex this is allowed! All Forex brokers allow traders to use some leverage, sometimes up to 200:1. What does this mean? Assume you have a trading account with 1.000$ and your broker gives you a leverage 25:1, this means that you can control a trading capital of 25 x 1.000 = 25.000 $. Leverage can help you achieve bigger profit but be careful using it, the higher the leverage, the higher the risk too.
In the stock market the general rule to make money is "buy low, sell high", this implies that you first buy a stock and then you sell it at a higher price. A huge advantage in currency trading is that you can make profit in two ways: buy low/sell high and sell high/buy low. Your broker allows you to open a long (buy) or a short (sell) trade so if you think that a currency will increase its value you can buy it, conversely if you think it will lose value compared to another currency you can sell it.
With the help of modern technology you can access the market any time and anywhere, you just need a mobile device and an internet connection. Brokers provide desktop and mobile trading platforms and mobile networks allow fast connectivity almost everywhere. You can trade on a train when commuting, from a bar and even on holiday!
Being a genius could surely help however is not a requirement to trade. Anyone willing to learn can trade currencies, you don't need a degree in economics, finance, or mathematics. Forex Trading involves different skills: instinct, discipline and some math wouldn't hurt. All of these can be learned and put into practice in Forex, you can train yourself. Want some inspiration about how to learn Forex trading, have a glimpse at our Forex course!
The explosion in popularity has resulted in the creation of many materials and products for the Forex Market. Learning materials are available everywhere: books, videos, training courses, workshops and more. Furthermore, many companies have made a business out of Forex, creating products like charting software, trading signals, expert advisors and so on. If you are interested in learning how to trade or you are looking for some product to assist you in trading I promise you will find what you need easily.
Forex is the most liquid traded market, meaning there is always people ready to trade. As a consequence of liquidity traders are able to quickly enter and exit trades.
The Forex Market has an enormous number of participants, participants of any size and shape, from any place of the world. Due to the number of players, their type, and the liquidity they generate in the market, it is very hard for a single participant to influence the price for an extended period of time. The market has its equilibrium and a single player can't break it.
As you can see the Forex market has some very strong points and the above are the main reasons that brought it to its popularity. Currency Trading is probably the best choice for someone who is approaching the trading world for the first time. You can find some ideas to learn how to trade Forex and if you want to start trading you can see how to install MetaTrader 4.
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