Foreign Exchange trading (Forex trading) or Currency exchange trading is a global Market that’s very liquid. As it is with other forms of Markets, it’s not for the faint of heart or the inexperienced trader. It can, although, prove very beneficial once you’ve gotten used to how things work in this kind of trading.
Here, we explain to you some major benefits of Forex Trading.
A 24-Hour Market for Five Days
Since it’s a worldwide market, it’s open pretty much continuously for the five working days. Being a worldwide market means that it’s open and running as long as at least one marketplace is open anywhere in the world. This means that it’s open pretty much all of the time between the time that first major market opens and the closing of the first major market on the other side of the world. For all your Forex Trading needs you can head over to Forex Trading South Africa.
Liquidity is the ability of am asset to turn quickly into cash. The Forex market having high Liquidity means that large amounts of money can be transferred between currencies with ease. This means that the trader always has money in their hands, they don’t have to wait for it to be converted before they can use it.
Low Transaction Costs
In the Forex Trading Market, the transaction cost is typically built into the price in the form of spread.
Spreads are measured in pips. For most currencies, a pip is the fourth place after the decimal point, or 1/100 of a percent. (For trades involving the Japanese yen, a pip is the second place after the decimal point, or 1 percent.)
In a forex trade, if the bid price was 1.3244 and the ask price was 1.3246; the spread for the transaction was 2 pips.
You can use Leverage
Forex brokers allow traders to buy and sell with some amount of leverage. This means that they’re actually using more amount of money than there is present in their accounts.
If you were to trade with a 50:1 leverage for example, you will be able to trade $50 for every $1 in your account which in turn means that you can trade $50,000 with just $1,000 actually present in your account.
More Profit Potential from rising and falling prices
The Forex Trading Market has no restrictions on the direction of transactions. This means that if you feel like a Currency pair will go up in value, you can buy it (in market terms “go long”). Similarly if you feel like a Currency pair is going to decrease in value, you can choose to sell it (in market terms “go short”).
Because currency exchange always works in pairs, you’re always going long for one currency and short for another currency. Let’s say for example you’re trading for currencies X and Y. You would buy that pair—that is, buy the X and sell the Y—if you expected the value of the first currency, known as the base currency, to increase in value in comparison with the second currency, known as the quote currency. You would sell that pair—sell the X and buy the Y—if you expected the value of the X to decrease in value in comparison with the Y.
Unlike the stock market where you first borrow shared to sell short, trading with a currency you don’t own is a much easier process where you just have to place a sell order.