5 benefits of Forex trading

By Binomo

Jul 23, 2022

Level: Beginner

Reading time 5 min

Foreign exchange trading, more commonly known as forex trading, is a huge industry with over $5 trillion being traded each day throughout the globe. Forex trading is the buying and selling of different currencies, which is usually done in pairs when you buy one currency while selling another. The fluctuations in these currency prices is what traders leverage to earn profit. The origins of the modern forex market date back to 1973, when the post-WWII Bretton Woods agreement broke down, taking exchange rate control with it. Largest forex trading centers include but are not limited to New York, London, Hong Kong and Tokyo. Some think that forex trading is easy to learn and anyone can become a forex trader and reap the advantages of forex, but there are many things that need to be kept in mind to ensure success.

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If you are thinking of becoming a forex trader, weighing the pros and cons of forex trading is only natural. You can absolutely learn about the different trading opportunities offered by the forex market and other alternatives. But there are certain tips that forex pros simply cannot ignore. In this post we will take a look at 5 major benefits offered by forex trading, and you will also learn the answer to the question: is forex a good idea? So, without any further delays, let’s get started:

1. Large-scale global market

When compiling a list of all the benefits offered by the forex market, its sheer size and global presence will always rank at the top of the list. On average, over $5 trillion worth of currencies are traded on different forex exchanges throughout the world daily. This size and presence of the global market makes it one of the best markets to get into because it offers a lot of benefits such as liquidity, technology, flexible trading hours, accessibility and protection from volatility.

2. Great for beginners

The great accessibility of the forex market makes it one of the best alternatives, especially for newbie traders. Relative to other financial markets, forex is much easier to access and get into. In fact, anyone with basic knowledge of computers and mobile technology can trade in forex. However, no matter how much money and time you throw into it, without proper knowledge and skill, you will not make much progress in the forex world.

How does Foreign Exchange work?

Free demo accounts allow beginners to start learning about forex trading by executing trades in a simulated environment. This is a great way to experience trading first-hand without risking any real money. This relatively low barrier for entry and great resources make forex is one of the best trading opportunities for newbies.

3. 24-hour trading availability

The timing flexibility offered by the forex market is another great thing about it. Forex trades are made over-the-counter (OTC), which means parties are directly exchanging currencies with each other and facilitated by a forex broker.

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Since forex operates in this particular way, it is not subject to opening and closing hours of any centralized exchange system. As long as any market is open in the world, a trade can be made.

While the stock market remains closed on the weekends, please keep in mind that prices will continue to move throughout the weekend. Factoring this into your trading decisions is very important to ensure that you are protected against any potential losses.

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4. Low transaction costs

Not only can you enter the forex exchange market with very little capital, the low transaction costs associated with regular trading also make it a very attractive way to invest.

When a currency pair is offered by a broker, you will get a quote: a bid (sell) price and a ask (buy) price, the pip differences between these two indicate the spread and the associated value is what you will pay the broker as commission.

Forex trading for beginners

Spreads are typically low, which makes trading forex very cheap. However, it is always advised to take a deep look at how the fee is structured with your broker and always choose the broker who is the most transparent.

5. Leverage as a weapon

Of all the reasons to trade forex, having the access to such good margins of leverage alone makes it one of the best alternatives to consider. With the amount of leverage offered by forex, you can make some high-level trades with relatively small capital.

Most brokers allow traders to put down a deposit and borrow against that in order to control a much higher stakes trade. This is just like putting down a mortgage for a house.

Ratios are used to express the available leverage with regulated forex brokers limiting maximum leverage for retail traders and ratios such as 1:50 and 1:30 are common. If you are offered 1:50 leverage ratio, it means that you can trade $50 with $1.

While this opens up some exciting avenues for making profits, doing it cautiously is very important because you can drain your accounts completely if you are not careful with leveraged trades.