6 Significant Benefits of Forex Trading Over Other Investments
The features making forex transactions superior in comparison to the trading of stocks or futures contracts include:
1. Low Margin
Similar to speculating about futures and stocks, Forex traders have the option of regulating an enormous amount of cash simply by taking a tiny sum of money. But, the margin requirements for futures trading can be as low as 5 percent of the total amount of the deal, or half of the total amount of shares, and margin requirements for forex could range between 1 and percent.
For example, the margin needed to trade every contract worth $100,000 is just $1,000. This means that when it comes to the forex market, a trader can play around five times the value of the product that he trades as a trader or 50 times the value of an investor.
When you trade using margin, this could be a profitable option to implement an investment plan, but you must make sure you are aware of the risk involved. You must ensure that you are aware of the way that the brokerage account functions.
So, you should make sure you have a look at the margin agreement that is signed between you and the clearing company to which you cater. It is also advisable to contact the account supervisor if you'd like to inquire about this issue.
The trading position you create in your account is also wholly or partially liquidated if the margin on your account is below a certain amount; however, you won't receive a notification before you can liquidate your positions in trading. This is why you must always keep track of the margin balance. You should also utilize a stop-loss order for each trading position to limit the risk of losing money.
2. No Commission and No Exchange Fees
If you are trading contracts for futures, you must pay for swap and brokerage services. Forex trading is distinguished by having no commissions, which is highly advantageous to the user. The currency market could be an interbank market worldwide that allows sellers and buyers to make transactions quickly.
While you do not have to pay a commission to the broker for you to make these transactions, it is true that the spread often higher than what's available in commodities exchange.
For instance, when you're trading USD/JPY, you'll notice that the spread for forex trading is about three pip (equivalent to about $30). If you're trading JPY futures, the spread is likely about 1.01 pip (equal to about $10), but you'll also have to pay commissions to the broker.
The commission could vary from $10 to $50 in the context of commission-based services and could be as high as $50 if you opt for the integrated services for trading. But the most crucial price to calculate should include the above items. It is possible to compare the commissions you pay for trading forex on the internet using futures contracts to determine which area is more expensive.
3. Limited Risk and Guaranteed Stops
If you decide to trade futures contracts, your risks may not be as limited. For instance, you might have believed that prices for live cattle would continue to rise in December 2003 before the spread of the mad cow disease that affected American cattle.
This resulted in an abrupt call to the livestock market and pushed them to decline regularly for a few days. In this scenario, you won't be able to end the position, which could result in the loss of the entire balance of your account. If the worth persists in refusing, you'll have to look for additional funds to cover the gap on your account for trading.
4. Rotation of Trading Positions
You'll need to plan when to move your trades if the derivative expires. The expiration date for Forex trading positions is every two days, and you'll be able to rotate every position once you open it.
5. The Market is open 24 hours Every All
The futures contract allows trading during the limited hours the Market operates during the day. If there is a significant announcement that occurs when marketplaces are shut, it is challenging to take benefit of it before the Market reopens.
This could happen within a few hours. In contrast, you'll discover that the forex market is accessible all day, seven days a week. The trading session starts in NY and is a follow-up of the sun across the globe, across Europe towards Asia in Asia and Australia before returning to the US. You can trade at any time you'd like between Monday through Friday.
6. A Free Market
Currency trading is possibly the largest Market in the world of finance, with a median daily turnover of around $1.4 trillion daily. This amount is 46 times the value of trading for all the futures markets! With such a large number of traders of currencies across the world, it can be challenging for governments to regulate their currencies' value.