There are multiple reasons why the FX market is currently one of the most popular markets to trade and it has recently been opened up to traders all around the world.

The FX market is one of the only markets that trades 24 hours a day for 5 days of the week. This means that at any time you can open and close trades, manage risk unlike other markets such as commodities and stocks. This does give multiple benefits but one that is most coveted by new traders are the reduced risk of gaping overnight. With stock and commodities between the close for one day and the open for the next many new things can come out on the market that would have an influence on the price. As there is a break in trading there can be a gap up or down and this can cause stop losses to be missed leaving a greater risk to your account. With FX, the gaps can only occur over the weekend unless you are trading some of the exotic currencies.

Another benefit for FX trading is the leverage you can obtain in the market. Many retail brokers will offer leverage of over 100:1 and some can go as high as 500:1. This means a normal trader with 200 USD in their account can trade a size of 100k. When trading products such as stocks, the limit will be much lower meaning to trade the same sizes you would need to have more funds to deposit. Although leverage is a double edged sword and will increase the likelihood of wiping your own account, some traders with a few funds would not even be able to access the market as they would not be able to take a trade. Gaining 3% on 100k gives you a 3k profit, 3% on 200 USD is 6 USD which is not enough of a profit to trade full time.

Another benefit of the FX world is the liquidity available

in the market. As there is no central exchange for FX, it

is considered an OTC (over the counter) market which

means each broker will be receiving different liquidity.

Even though not all the liquidity is accessible from one

broker it still has a massive quantity of depth and allows

you to trade 24 hours a day even if the country’s

currencies you are trading is asleep. There will never

be a time for the major currencies when they come to

buy or sell and cannot get a price which can occur in

some of the most complex markets.

One of the dwindling benefits is the ability to go long and short as you are always selling one currency and buying another. Other products did not have the ability to short sell but this has been less of an issue recently with derivatives and the ability to borrow stock.

 

Overall there are many benefits for new traders to start trading Forex ranging from the times, risk and ability to trade larger volumes than other products. But when trading some of these benefits can turn around and bite back due to over leveraging, market moves overnight when you are away from the platform. You will also find the major currencies will rarely ever move over a couple of percents a day which means you are able to use the extra leverage more effectively without wiping out you account.

Why trade fx