Why Trade Forex

by Warren Seah
why trade forex

The Fastest Growing Market of Our Time

According to the Triennial Central Bank Survey of the foreign exchange market conducted by the Bank for International Settlements and published in October 2007, daily trading volume hit a record of $3.2 trillion, up from $1.9 trillion in 2004. This is estimated to be approximately 20 times larger than the daily trading volume of the New York Stock Exchange and the NASDAQ combined.

Advantages of Trading Forex over Stocks and Futures

Around-The-Clock 24hr Market

The 24hr nature provides instant access to the markets at all hours of the day. This does not mean that you have to trade the market for the entire day. In addition, most people who want to trade the market have a full time job. This allows them to trade after work.

As the market only closes after Friday and reopens on Sunday, there will be a less tendency for market to gap up or gap down. The most active trading hours are when 2 markets overlap, for example US overlaps with Europe or Asia overlaps with Europe.

Lower Transaction Costs

Trading on the forex market does not go through a central exchange. You have no idea how many parties you will need to pay when you place a trade in stocks and futures. That explains why a person trading stocks and futures will pay much more in commissions and spreads to their broker.

Lower transaction costs make forex trading the best market to trade. In the forex market, because it is decentralised with no exchange or clearinghouse. These fees are not applicable.

Customisable Leverage

Most currency brokerage firms offer 100 times to up to 200 times leverage. While, trading with leverage is often said a double edged sword, it helps you make more money or helps you lose more money over a short period of time, few of them find it easy to turn away the opportunity to trade on someone else’s money.

Trading with leverage involves more risk. However, this risks are manageable if a trader uses a strict money management. He can effectively grow his money much faster then someone who does not use leverage at the same level of risk.

Profit in Both Bull and Bear Markets

Robert Kiyosaki, the author of Guide to Investing,, in his book he said that a true investor can both profit in a bull market and also in a bear market. In forex market, you can long the market or short the market. Shorting the market is as easy as you are long on the market.

This is different from the stock market, where most traders go long instead of short stocks, so that generally, they can make money in a bull market but tend to suffer in a bear market.

No Trading Curbs or Uptick Rule

The uptick rule when you are shorting does not apply in the forex market. That is, you aren’t penalise to short the forex market. Shorting and longing the market provide the balance and is necessary for a healthy and efficient market.

Instant Execution of Order

Orders are executed within seconds and filled at the price that you want to buy. Order execution is almost instant, it has limited slippage. That is most often you will buy at the price you want.

Order execution is guaranteed. However, at times when market is very volatile, you may receive a re-quote from your broker informing you that you cannot buy at the price because the market has moved. A subsequent new price is available for you if you decide to make a trade.

Perfect Market for Technical Analysis

Over 80% of volume in forex market is speculative in nature. Hence, technical analysis works well for the forex market and the technically trained trader can easily identify new trends and breakouts, which provide multiple trading opportunities.

Many technical indicators and charting tools like fibonnacci and gann analysis are provided free in the trading platform. The platform I recommend forex beginners traders to use is Metatrader 4. Price feeds, technical indicators and charting capabilities are all provided free. You can try and test your strategy before you decide to trade the forex market with your own money.

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