Part II: Why Should I Trade Forex
Advantages of Forex
Trade on Your Schedule
The single biggest advantage the
forex market has over other markets is its 24-hour nature. A trader can put on
or take off positions literally any time of day or night, regardless of their
base of operations. That opens the game up to a great many individuals who might
not otherwise have the time available to trade.
Consider, for example, the working
person with a 9 to 5 type of job. Most folks like that cannot be expected to
operate effectively as day traders in a market such as stocks. They just can’t
spend the requisite time watching the market during trading hours. With forex,
though, one could theoretically day trade in the evenings after work, or in the
mornings beforehand. The forex market is never really closed (yes, in some
cases you can even trade on the weekend!).
No (or low)
Transaction Costs
For most traders, the forex market
also offers the benefit of no transaction costs. For the most part, forex
brokers do not charge commissions (if they do, they are relatively small). There
is, of course, the bid/offer spread, which can be viewed as a transaction cost,
but the reality of the situation is that most traders buy at the offer and sell
at the bid in whatever other market they trade, so that’s really no different.
Actually, the forex spreads can be quite small in the major currency pairs.
Low (or no)
Account Minimums
Forex trading is also open to a
wider trading demographic in that there are many opportunities to open smaller
accounts than is the case in other markets. In fact, there is at least one
broker which has no minimum account size. What’s more, they also have no
minimum trade size. That sort of flexibility opens the door to essentially
anyone who wants to explore forex trading. This isn’t to say that all brokers
are that flexible. There are, however, a great many which offer so-called
mini-contracts.
Multiple
Trading Vehicles
Additionally, forex trading can be
done in a number of fashions. Many folks tend to think strictly of the spot
market. While that is certainly the largest of the components, it is not the
only one. The futures market has become a bit more attractive with the
expansion of e-mini currency contracts. There are futures options as well.
What’s more, an array of other option trading alternatives have been popping up,
providing traders even more ways to take positions in the forex market.
Always
Moving
One of the biggest attractions to
forex trading is that there’s just about always something moving. There are a
number of primary currencies involved, each of which is continuously interacting
with all the others. Chances are, at any given time, there is movement in at
least one of those exchange rates based simply on the sheer volume of trading
and the number of global news events providing impetus to action.
Easily
Trade Long or Short
In the stock market there are
restrictions imposed on selling short. In forex there is nothing of the sort.
It is just as easy to taking a short position as it is to take a long one.
Disadvantages of Forex
No Exchange
The disadvantage to forex, some
would say, is in the lack of an exchange system in forex trading. Some traders
find comfort in knowing that there is a regulated mechanism backing their market
participation. What’s more, the lack of a centralized data point means the spot
forex market does not have all the great add-on information stock and futures
are used to seeing (volume, for example).
Complex
Nature
In terms of market analysis
techniques, technical analysis is just as useful in forex trading as in any
other market – some might say more so. The thing that gives some traders
concern. however, is the complexity of the fundamental side of the forex market.
Currency exchange rates are influenced by a wide variety of factors, which can
fluctuate over time.
Two-Sides
to Every Position
By it’s very nature, there are
always two sides to the forex market, because currencies are quoted in terms of
their value against each other. That means for any given exchange rate there are
two countries (or region’s) to take in to consideration. Sometimes issues
related to one of the countries will dominate, while sometimes the other will.
It can be quite fluid in that regard, which can sometimes lead to quite
confusing reactions to news and events.
While these issues may seem like
significant barriers to trading forex for some, the fact of the matter is that
for most folks they are easily overcome. Just like any market, forex requires
some getting used to. Once you do, though, it provides a wide array of
opportunity.