Why Trade Forex. According to research in South Africa, understanding the reason why trade forex and knowing forex trading signals when a beginner trader can be a challenging process. Knowing that it’s a thriving market where, on average, US$6.6 trillion worth of currencies is traded daily.
In this article, we will list why traders trade Forex when they trade Stocks, Indices, Binary Options, CDFs, ETFs, Forex, and cryptocurrencies like Bitcoin and Ethereum.
This list is not meant to be a ranking but rather a comprehensive list of straightforward explanations of the must-know forex trading signals for beginner traders.
Good luck and good trading.
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Why Trade Forex? An Expert View
- ☑️The Largest Financial Market
- ☑️Forex trading is open to anyone
- ☑️High Volume and Liquidity
- ☑️Nobody Owns the Market
- ☑️Trade, whether going up or going down
- ☑️A 24-Hour Market
- ☑️No Commissions on Most Forex Accounts
- ☑️Low Transaction Costs
- ☑️Leverage
- ☑️Risk-free Demo Account
- ☑️Why trade Forex? Additional Key Reasons include
The Largest Financial Market
The Forex market is the largest financial market in the world, and it will not soon lose that title.
It is not hard to see why the Forex market is used as a global trade and economic activity parameter.
On average, four to five trillion are traded daily. That’s about $200 billion an hour, $3 billion a minute, and an incredible $50 million a second.
Forex trading is open to anyone.
As discussed earlier, Forex trading is open to anyone getting involved because of technology.
This, coupled with the fact that getting started as a Forex trader does not require a lot of capital anymore, especially when compared to trading stocks or options, makes it a great way to start investing for yourself.
Minimum deposits are normally extremely low, if not 0, to open an account with a broker of your choice.
High Volume and Liquidity
Liquidity is the ability of an asset to be quickly converted into cash.
In the world of Forex, high liquidity means large amounts of money can be moved into and out of currencies with generally small spreads.
Nobody Owns the Market
Because of the Forex market’s previously mentioned large size and the number of traders, no single person or institution can control market prices for any extended period.
Also, the Forex market is decentralized, and there are no middlemen. You trade directly with another participant in the market, and a retail Forex broker simply facilitates this connection.
Essentially, the market is influenced directly by the economy, not by one person or a company. It cannot be monopolized, manipulated, or controlled.
Trade, whether going up or going down.
The Forex market has no restrictions on directional trading. This means that if you think a currency pair will increase in value, you can buy it (or go long), and if you think it will decrease in value, you can sell it (or go short).
Because currencies trade in pairs, you are always buying and selling one currency, no matter whether you’re going long or short.
Unlike in the stock market, where you first borrow shares to sell short, selling a currency you do not own in the Forex market is straightforward: You just place a sell order.
A 24-Hour Market
The Forex market never sleeps. Open 24 hours a day, 5 days a week, it allows you to trade whenever you want to, not when the market opens and closes, as is the case in other markets.
Since the Forex market is global, trading is open if a market is open somewhere in the world.
Trading opens when the first major market opens, which is in Sydney, Australia, at 5 pm Eastern time in the U.S. on Sunday, and trading “closes” for the week when the New York market closes at 5 pm on Friday, only because it is the last major market to “close.”
No Commissions on Most Forex Accounts
There are generally no trade commissions or incredibly low ones for large-volume trades.
Most brokers earn their revenues through the “spread,” or the difference between the bid and the asking price.
There are also no clearing or exchange fees.
Low Transaction Costs
As mentioned above, the difference between the bid and ask price is the broker’s spread,, which is the retail transaction cost.
Highly capitalized brokers can offer extremely competitive spreads, thus minimizing your trading costs and maximizing profits.
The cost of a transaction is typically built into the price in the Forex market as the spread.
In normal market conditions, spreads are usually less than 0.1%, and Forex brokers pocket the spread as payment for facilitating the trade.
Spreads are measured in pips. For most currencies, a pip is fourth after the decimal point or 1/100 of a percent. (For trades involving the Japanese yen, a pip is in second place after the decimal point or 1 percent.)
In a Forex trade, if the bid price was 1.3244 and the asking price was 1.3246, the spread for the transaction was 2 pips.
Brokers may also charge a commission, either a flat fee or one based on a percentage of the transaction amount, so it is important to investigate how a broker makes their money when deciding on a broker to trade with.
They are most certainly not all the same in many ways, and this is one of the key ones to look out for.
Leverage
Forex Brokers often allow traders to buy and sell in the market with higher amounts of capital than in their accounts. This is called Leverage.
You are essentially “borrowing” from your broker to trade in amounts greater than your actual deposited capital. This can be a massive advantage in trading Forex compared to other markets.
If you were to trade at 100:1 leverage, just as an example, you could trade $100 for every $1 of capital in your account. Effectively, that would mean you could trade $100,000 using only $1,000 of capital in your account.
It is important to know that leverage works both ways; it can work to your advantage or against you.
Risk-free Demo Account
You can often use a free Forex demo account to practice Forex trading risk-free as you learn and develop your skills as a Forex trader.
The amount of virtual money given depends on the broker and the environment in which you will be trading.
Many brokers offer “real-time” trades and scenarios exactly like the real trading environment.
Why trade Forex? Additional Key Reasons include
The importance of Forex
Forex is important to countries, companies, and investors for three strategic reasons.
The role of central banks to control inflation
Central banks in nearly every country hold massive amounts of reserve currencies to support the stability of their economies.
The role of a central bank is to conduct monetary policy using various tools to influence the amount of money circulating in an economy, the rate of inflation, and the interest rates charged on loans.
These central banks will lower interest rates during an economic slowdown to encourage consumer spending. However, this move weakens the currency. On the flipside, lower interest rates should boost the export sector, which triggers economic activity.
As economic conditions improve, central banks can increase their interest rates, making their country or market attractive to foreign investors.
Ultimately, central banks will intervene in the currency market to control inflation.
Hedging to lock in an exchange rate
Companies will also use the Forex market to limit their risk due to currency fluctuations: through hedging, they can lock in an exchange rate for a specific time.
Usually, these companies order goods but do not receive them immediately.
During the period between ordering and finalizing the transaction, currencies could fluctuate, resulting in a loss or win for the company.
The Forex market allows hedging against this risk, protecting the company from major losses.
Forex is the linchpin of International trade.
Exporters must convert foreign currencies into local currency, and importers must convert their regional currency into the currency of the supplier they pay for the goods or services.
Investors also need the Forex market to buy or sell international assets.
How did the Forex market become accessible to investors?
Like other financial verticals, such as banking or insurance, the Forex industry has had to constantly evolve to remain relevant.
How did Forex go from a market that only 30 years ago was done solely over the telephone by professional investors to become the market it is today with vast amounts of “normal” people investing for themselves from their own homes?
What made the difference? As in many different fields, the answer is technology.
For the financial markets, the ongoing advancement of technology has been the key factor behind the evolution of the trading market.
Technology has made Forex trading more accessible.
Technology is also at the core of how companies operate and maintain their competitive edge in this highly competitive market.
Technology has made trading more accessible to more people. Nowadays, everyone has a stable, high-speed internet connection, which allows access to this world of trading.
Before, trading was only available to institutional players, but the coming of technology has opened the world of Forex trading to anyone with access to the internet.
Technology has also massively affected the Forex market through the introduction, integration, and evolution of automation in almost all aspects.
From back-end to front-end automation, the mostly manually intensive transaction-based operation of Forex has changed to a virtually fully automated machine that has affected business in every conceivable way for Forex brokers and traders alike.
Faster and more automated execution has eliminated the need for dealer intervention. This means faster execution of trades and very little or no chance of missing trades for traders.
Speed is a big factor in this interconnected world of instant access (to almost everything). When a trading provider uses words like no time delays, no latency, millisecond executions, and other descriptions of speed, you know that leading-edge technology is at the core of their offering.
Technology’s role in getting expert Forex advice
Another game changer came about because of computer programs known as Expert Advisors.
These “advisors” are not people who provide advice but rather computer programs that help with Forex trade decision-making.
Developed using MetaQuotes Language 4, a programming language specifically for creating trading robots, these programs analyze market data based on several custom indicators and manage trading activities on behalf of brokers.
In addition to trading at all hours of the day, Expert Advisors can perform more precise analyses and quicker execution than humans.
These sophisticated Expert Advisor programs allow trades to be made quickly from your computer or mobile device. Prices and analytical data are streamed in real time, and there is great transparency.
This, coupled with the flood of educational and mentoring materials offered by brokers in this new age of trading, has reduced the gap between skilled home traders and professional traders.
Now that we have discussed how a normal person can trade Forex, let’s examine WHY you would trade in Forex as opposed to other markets.
In conclusion
For beginner and advanced traders, trading forex has several benefits that are hard to ignore. The forex market is open all day, seven days a week, which allows users from different time zones to engage in different transactions during the week.
It is also characterized by high liquidity, which enables our trades to be executed quickly and at better prices.
Moreover, through the employment of leverage, traders possess the capacity to manage bigger trades even with smaller funds, but this increases their susceptibility to loss.
The monumental number of currency pairs provides a variety of trading options for several strategies and risk levels. In summary, foreign exchange is an easily done business that is full of action and has a lot of room for well-grounded profits if adequate information and loss management skills are used.
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Frequently Asked Questions
Why do people want to trade forex?
Forex trading allows you to trade various currency pairs, speculating on global events and the relative strength of major and minor economies.
Who benefits from forex trading?
For a reason, Forex is the largest market in the world. It empowers everyone from central banks to retail investors.
What is the point of forex trading?
Foreign exchange trading, or forex trading, involves buying and selling foreign currencies to make a profit.
Can someone trade forex for a living?
It is certainly attainable, but it usually requires getting knowledge and experience.
What is the main point of forex trading?
They buy and sell currencies in pairs, taking advantage of changing rates.
Why do people want to trade forex?
Forex trading allows you to trade various currency pairs, speculating on global events and the relative strength of major and minor economies.
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