May 12, 2010

Advantages of FOREX Trading

Here are some of the more common advantages of trading FOREX over other markets - intended as a beginners guide for those wishing to start trading Foreign Exchange.

The FOREX market is open round the clock 24/7 (weekdays) so you can always trade outside normal work hours if you want to. This is ideal for punters who are thinking of 'phasing in' their trading without it affecting their main full time job and is how most people like to start. This flexibility provides a nice easy introduction to trading without any risk to your main income if you start with a 'demo' account for a couple of hours or so in the evenings.

Because the FOREX market dwarfs all other markets due to the sheer amount of money changing hands (in the region of several trillions of dollars per day), the 'liquidity' is considered excellent, which means that you can nearly always get a good 'fill' or entry at a price you would expect. The cost of any 'spreads' (The difference between the current market price and the price your broker gets you into a trade) are therefore relatively small, especially if you trade a common currency pair such as the Euro Dollar (EURUSD). This keeps your costs down.

Costs are simplified and minimised in FOREX. Usually, with a regular stocks and shares account, you will pay a 'spread' cost to get into a trade, and a commission to your broker on each trade, whether you win or lose. In some cases, there is also a 'stamp duty' cost. Foreign Exchange trading simplifies this by just having a spread 'fee' and no other costs are involved.

Combinations of currency pairs that include any of the main five currencies (Dollar; Pound; Euro; Yen and Swiss Franc - USD GBP EUR JPY CHF) also attract relatively small spreads because they are traded frequently. Other commonly traded currencies are Australian, Canadian and New Zealand Dollar (AUD, CAD & NZD).

As there are only a limited set of currency pairs, you don't spend hour after hour searching through hundreds of stocks for the right one to buy. I follow only six currency pairs and some traders only study and trade one! - This can greatly reduce any preparation time and analysis. Also, the amount of indicators that FOREX traders use with their charting, tends to be limited to a handful, so there is no 'analysis paralysis'. - I use Stochastics, Average True Range, (ATR) and Fibonacci levels only.

Currency pairs tend to trend up or down for long periods of time, and there is therefore a good chance of getting in on a move and riding with it. This is an ideal scenario for a 'swing' trader. Momentum (the speed at which price changes), can be very high in Foreign Exchange trading, so can be seen as an advantage or a disadvantage. This means that you can make a lot of money (or lose it) very quickly, sometimes within minutes!

You can trade in bull and bear markets, so you are not restricted to the 'buy low, sell high' strategy. There should therefore be more opportunities to trade as you can trade 'long' or 'short'.

It is much more common for traders to start off trading 'equities' or stocks and shares first, then when they discover FOREX, it surprises them by opening up a whole new world of simplicity!

About the author:

I am a private full time FOREX trader and have my website at http://www.bridgetosuccess.co.uk with Foreign Exchange information and products to help with your FOREX trading.

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