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What is forex?
Forex or currency trading refers to the global foreign exchange market, which is the biggest financial market in the world. Its average daily turnover hit $7.5 trillion per day in April 2022, according to the BIS Triennial Central bank Survey [1]. That dwarfs the nearest financial markets and makes it market for all types of traders and investors.
The forex market has some unique characteristics and advantages:
24-Hour Market
The forex market is sometimes known as the “market that never sleeps”. There is no central market exchange, which means it is open 24 hours a day, five days a week. This is unlike stock or commodity markets which close at the end of each business day.
Trading starts in Sydney, Australia at 5pm Eastern time on Sunday and closes in New York on Friday at 5pm Eastern time. Somewhere in the world, there will be someone trading forex during the week. This can mean trading can fit around your lifestyle and when you want to trade.
High Liquidity [2]
The huge size of the forex market means it is known for extremely high levels of liquidity. Essentially, this means there are a large number of buyers and sellers at any time of the day. So, under any usual market conditions, you can instantly open or close your trade.
The forex market is also so big with so many participants that no one can corner the market or manipulate prices to their advantage.
Low Trade Costs and No Commissions [3]
Forex markets typically have very narrow spreads – that is the difference between the bid price and the ask price and what a broker will charge.
Use of Leverage
Retail traders have the option to utilise leverage, which allows them to amplify their trading potential beyond their initial deposit. Leverage enables traders to open positions in the forex market by providing only a fraction of the total value of the position upfront. This approach enables traders to maximize their trading opportunities with a smaller upfront investment. However, it is important to consider the flip side, which is that leverage in forex trading can also magnify your losses, potentially exceeding your initial deposit.
Traders Can Potentially Make Returns from Rising and Falling Prices
Trading forex by using leverage allows you go both “long” and “short” in the market. If you expect the price of a currency pair to rise, you buy the base currency as you think it will rise against the quote currency.
Alternatively, if you think the base side will fall versus the quote currency, you will go short and hope to potentially make a return by buying the currency pair at a lower price.
Trading on both sides of the market enables you to potentially capitalise on volatility in the forex market. Price movements go on constantly in either direction but that does mean markets can turn against you quickly. It is therefore important to have good risk management rules and tools in place.
Access to Free Tools
Vantage offers clients lots of free services to help traders improve their market know-how and understanding. These include a variety of webinars, trading tools and market analysis. Various trading platforms and social trading functions are also available.
Beginners can opt to open a demo account and practice trading with virtual credits, or you can open a live account in less than five minutes to start trading. You will have access to real-time charting services and different types of trading accounts, all to suit your start-up capital and needs.
Final Thoughts
Trading forex takes place in a global market which is highly liquid. The huge amount of daily volume means you can get in and out of your positions almost instantly. It is also possible to hold small position sizes which is great for traders who are just starting out.
The forex market is relatively accessible as it primarily revolves around the movement of a few major currency pairs. The low barriers to entry and simple cost structures make it appealing to traders of various ages and experience levels.
References
- “OTC foreign exchange turnover in April 2022 – BIS”. https://www.bis.org/statistics/rpfx22_fx.htm. Accessed 30 June 2023.
- “Liquidity – BabyPips”. https://www.babypips.com/forexpedia/liquidity. Accessed 30 June 2023.
- “Why Trade Forex: Advantages Of Forex Trading – Babypips”. https://www.babypips.com/learn/forex/advantages-of-forex. Accessed 30 June 2023.
