The Forex market has massive liquidity, which means that the market is traded very frequently almost every trading day globally, with trillions of dollars changing hands. There is no Forex trade on a particular exchange, but instead Forex works by machines dealing directly with other machines (conducted over the counter market).
When the Forex industry spans many boundaries, the industry controls it and is when near as you find in a market with perfect competition, practically unhindered from and unable to constrain regulators’ control and intervention.
1. Unparalleled leverage
The unprecedented leverage that is open to Forex traders is one of the main attractions of Forex trading. Leverage is the opportunity to retain a trading position with just a fractional volume of the market value of the traded instrument. This fractional required deposit sum is known as “margin” to maintain a trading position.
High levels of debt mean that a limited amount of capital can be used by Forex traders to realise large profits, vice versa depending how you are leveraged you can lose a far larger sum than your capital if the market goes against your position.
For example, a trader will realise a profit of approximately $20 (or nearly double his investment) on only a 20-pip shift in the exchange rate with an investment of just about $10, selling micro-lots of 500:1 leverage.
Among the most commonly exchanged currency pairs also have a regular trading range of up to 100 pips or more, as mentioned previously. This frequent uncertainty offers substantial benefits within the spectrum of market changes that exist within a typical business day to realize gains.
There are no short selling limits, such as those that apply with stock trading. A broad regular trading range makes the Forex market very appealing to speculators in general and day traders in particular, with fair opportunities to benefit from both purchasing and selling.
In a single business day, the incredibly high scale of business that happens in the Forex market allows for significantly higher liquidity levels. High liquidity makes low bid-ask spreads possible and helps traders during the trading day to quickly join and exit trades.
High liquidity helps major institutional traders, such as banks, to exchange large positions without creating large price swings, which usually exist in markets with low liquidity.
Again, this results in reduced gross trade expenses and, thus, higher net gains or lower net losses. Many traders often see improved liquidity to make long-term patterns more effectively analysed by charting and technological analyses more likely to be exchanged in stocks.
Forex trading will help you determine how competitive you can be, and if you just want to be particularly cautious, you can at least get a decent idea of what you are getting in with different trading techniques but it’s a good idea first to deal on paper.
Forex Trading is an interesting and potentially lucrative method of trading, as long as you know enough to make informed decisions. However, as with all types of Forex trading there is significant risk to your capital, take it slow, learn, practice before you even consider actively trading.