Forex Trading For Newbies Day 3 – There Are Many Different Advantages to Trading Forex
There are many different advantages to trading FOREX.
Instead of futures or stocks, such as:
- Lower Margin – A FOREX trader can control a large amount of currency with only a small account deposit, just like when futures and stock speculation is done. Futures require a 5% margin and the margin required for FOREX is around 1%. In layman’s terms, in FOREX trading, a currency trader can control 5 times as much with his money as in futures trading and 50 times more than stock trading!
There is much profit in trading on margin, but you need to be fully aware of the very high risks too. Be sure you understand the ins and outs of your margin account and that you have read the margin agreement between you and the clearing firm. If you still have things you are not sure about, discuss these issues beforehand with your account representative.
If you allow your account to fall below an amount set in your agreement, you could experience the partial or complete liquidation of your positions. It may be done before you even get a margin call, so be sure you review your margin balance regularly.
Take advantage of stop-loss orders on each open position; this is a must in order to reduce risk and preserve valuable working capital.
- There are No Exchange Fees and NO Commission – You pay exchange and brokerage fees in the futures market, but FOREX trading is commission free with most Forex brokers. You benefit from free access to this worldwide network where buyers and sellers are matched almost instantly. Although the trading is commission free, the spread (difference between the asking price and the bidding price) is larger than futures.
- Guaranteed Stops and Limiting Risk – Unlike the sometimes unlimited risk involved in the futures market, FOREX is said to have guaranteed stops that can be utilized to limit risk. This is a myth. During a time of extreme volatility your stops in the Forex market can be “run” just as in any other market. We personally know of a trader with one of the largest Forex brokerages who had his stops run by over 140 Pips per contract! Basically it is the equivalent of not being able to get out of a futures trading position as the price moves against you. You are able to plan ahead to limit risk to some degree in the FOREX trading market. An example of this would be losses sustained in the futures market due to Mad Cow Disease.
- Trade Rollover In FOREX trading, you need to rollover each trade every two days just to keep your position. In futures, you must plan ahead to rollover when a contract expires.
- Open Around the Clock – In the futures market your trading is limited during the window of time that each market is open. If current events make getting out of a position important, you still must wait until the market reopens. That could be hours, creating financial disaster for you. But, the FOREX market is open around the clock, five days a week. It actually follows the sun! From the United States, to Europe, Asia, Australia, and back again to the States, it allows you to trade at any time you desire.
- A market place of free trade. On a daily basis, the foreign exchange is a $3.2 trillion (and growing) dollar market! This is 46 times larger than all the futures markets combined. Governments around the world struggle to control their own currency because of the massive number of people trading FOREX worldwide.
FOREX trading is a tremendous opportunity and an alternative to futures and commodities trading.
As is true with all trading, there are certainly risks involved. To reduce your risk, the services of a Broker are important and advised.
This comprehensive guide will help you learn what is necessary to achieve success in the FOREX market.