The Forex market is the world’s largest financial market. With just a click of a button via an online trading platform, you can see big and small moves in the value of currencies worldwide and trade them. Many new traders find this logic exciting, but the question is, what do you stand to gain from trading this market?
This article sheds light on some benefits of trading in the world’s largest financial market. These points will not only help you understand the workings of foreign exchange but also shape your mindset as you delve into this thriving market.
Foreign Exchange (Forex) is more than a market but a way of life, and this is why it is distinct from the other financial markets. The concept of foreign exchange and currency trading is as old as mankind, but it was quite different from how we know it today.
About 2500 years ago, Egyptians and Greeks carried out trading with molten silver and gold. Goods and services were given in exchange for these precious commodities. Many years after, when the Romans pioneered currency minting, copper and other lesser value commodities were used for trading cheaper items.
After currency minting was popularized, nations of the world would determine the value or production of their currencies based on the quantity of Gold in reserve. This policy was known as the Gold Standard.
Forex trading as we know it today didn’t happen until 500 years ago in Amsterdam. It was a process used to stabilize the exchange rates between various currencies.
Today, foreign exchange forms a crucial part of the world’s economy, and its market is the largest and most liquid financial market in the world. As of 2020, the global Forex market was valued at $2.4 quadrillion, with about $6.6 trillion traded daily.
The Forex market is exciting water for both experts and new traders to explore. It comes with so many benefits, but only five crucial ones will be discussed here, and they are:
Unlike popular belief, the Forex market is not just for the big investors but for many who would love to earn from the world’s largest financial market. There are many online platforms today that make retail trading possible even from the comfort of your home. However, retail trading was not possible until the late 1990s. Before this time, forex trading was limited to only large financial institutions.
Today, anyone can access trade in the Forex market via trading platforms like Mtrading. Trading platforms and software let you observe the value of a currency against other currencies in real-time on their trading chart. With only a click of a button, you can buy or sell these currencies in seconds.
The Forex market is open 24 hours a day, five days a week, giving it the status of the market that never sleeps. Trading starts at the opening of the Sydney session, 9:00 pm to 6:00 am UTC and closes with the New York session from 1:00 pm to 10:00 pm UTC.
The 24 hours structure of the Forex market offers traders so much flexibility and control over their time. You don’t have to wait for an opening bell to begin trading for the day or worry about the market shutting you out at the end of the day before your order is executed.
In every market, there are buyers and sellers. There are cases when you decide to sell, but there are no buyers readily available and vice versa, but it is not so in the Forex market. The Forex market is regarded as the most liquid financial market in the world because whenever you go long (buy) or short (sell), there is always a seller or buyer at the other end to complete the transaction. As a result of this, you can also choose to automate trading for highly liquid currency pairs.
The Forex market has its slow/quiet hours, but it doesn’t affect the market’s overall liquidity.
Trading the forex market comes with little costs, usually in commission and/or spreads.
Spread is the money a broker charges for providing you access to trade and profit from the Forex market. Its value depends on the particular currency pair and the broker’s policy. It is measured in pips.
A pip is the fourth figure after the decimal point in the value of most currencies except the Japanese yen (JPY). For JPY paired, a pip is the second figure after the decimal point.
To know the trade spread or transaction cost, subtract the bid price from the ask price. For example, a currency pair has a bid price of 1.3346, and, the ask price is 1.3348, the spread is 2 pips.
What distinguishes the Forex market from other financial markets is that it caters to beginners and learners. Without experience or knowledge, trading can be a frustrating ordeal hence the availability of a demo account.
A demo account is funded with “play money” for you to hone your skill as a trader without affecting your actual capital. If you are new to trading and want to experience the Forex market without any commitment or risks, a demo account is your best bet!
The Forex market opens doors to lots of possibilities, but it also involves risks. There are times when your losses may exceed deposits. Before venturing into live trading, it is safe to master your skill through the demo platform.
Many trading platforms tend to provide leverages to increase your chances of making a profit, it is best to avoid over-leveraging as it could damage your account in the long run. Start stranding with a moderate size account and build it up to your desired balance. With an excellent risk-reward ratio, you can trade the Forex market without incurring so many losses.