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Forex Trading - The Benefits of Online Trading
Online forex trading has revolutionized the currency markets by making it accessible to the small and medium sized investor. For the first time, these investors have the ability to execute trades on the forex market between $100,000 and $10,000,000 at the same prices the Interbank market offers for deals in excess over $10,000,000. This benefits all of those who wish to speculate on the direction of the forex currency markets for profit, as well as hedgers.
Some Benefits of Trading Forex on the Internet Include:
- Instantaneous forex trade execution and confirmation
- Lower transaction costs
- Real-time profit and loss analysis
- Full access to forex market information at any given time
Instantaneous Forex Trade Execution and Confirmation
Online forex trades are executed and confirmed within seconds, which ensures that traders do not miss market opportunities. Even the extra time it takes to complete a transaction over the phone can mean a significant difference in profit potential.
Lower Transaction Costs
Executing trades electronically reduces expenses, thereby lowering the costs of doing business. Online forex brokers are then able to pass along those savings to their client base.
Real-time Profit and Loss Analysis
Due to the fast-paced nature of the forex market online trading platforms are typically designed to provide real-time information about current positions.
Full Access to Forex Market Information
Access to timely and relevant information is critical. Most, if not all, online forex trading platforms are designed to provide access to reliable market information from a variety of sources, including real-time price quotes, international news, government-issued economic indicators and reports.
Benefits of Forex Trading vs. Equity Trading
- 24 hour trading
- Liquidity
- 100:1 Leverage
- Equal access to forex market information
- Profit potential in both rising and falling markets.
24-hour Foreign Exchange Trading
The main advantage of the forex market over the stock market and other exchange-traded instruments is that the forex market is a true 24-hour market. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading forex, so investors can respond to breaking news immediately around the clock. In the currency markets, your portfolio won't be affected by after hours earning reports or analyst conference calls
Recently, after hours trading has become available for U.S. stocks - with several limitations. These ECNs (Electronic Communication Networks) exist to bring together buyers and sellers when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, stock traders must wait until the market opens the following day in order to receive a tighter spread.
Forex Liquidity
With a daily trading volume that is 50x larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the forex markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Investors can always open or close a position, and more importantly, receive a fair market price.
Because of the lower trading volume, investors in the stock market and other exchange-traded markets are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.
100:1 Leverage
Leveraged trading, also called margin trading, allows investors in the forex market to execute trades up to $500,000 with an initial margin of only $5000. However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great. A more pragmatic margin trade for someone new to the forex markets would be 5:1 or even 10:1, but ultimately depends on the investor's appetite for risk.
Equal Access to Market Information
Professional traders and analysts in the equity market have a definitive competitive advantage by virtue of that fact that they have first access to important corporate information, such as earning estimates and press releases, before it is released to the general public. In contrast, in the forex market, pertinent information is equally accessible, ensuring that all market participants can take advantage of market-moving news as soon as it becomes available.
Profit Potential in Both Rising and Falling FX Markets
In every open forex position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling forex market. The ability to sell currencies without any limitations is one distinct advantage over equity trading. It is much more difficult to establish a short position in the U.S. equity markets, where the Uptick rule prevents investors from shorting stock unless the immediately preceding trade was equal to or lower than the price of the short sale.
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