Monday, May 5, 2008

Benefits of Forex Trading

There are many benefits and advantages to trading Forex. Here are just few reasons why
so many people are choosing this market as a business opportunity:

1. LEVERAGE: In Forex trading, a small margin deposit can control a much larger
total contract value. Leverage gives the trader the ability to make extraordinary profits
and at the same time keep risk capital to a minimum. Some Forex firms offer 200 to 1
leverage, which means that a $50 dollar margin deposit would enable a trader to buy or
sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with
$100,000 dollars and so on. Moreover, one must be careful when choosing leverage
because due to experience and research, it is very clear that leverage is misunderstood
and this misunderstanding is a root cause of Forex trading losses and the futile attempts
to overcome these losses without addressing the root cause.
Because of the high leverage that Forex offers, Forex positions require a much smaller
account size than stock. Stocks trading similar sized positions as Forex margin
requirements are much smaller than stock margin requirements. And so the reward can be
much greater with Forex, but at the same time, the risk is much greater. But this can be
dealt with effectively with good trading tactics and good money management rules that
allow for maximizing profit potential and minimizing risk.
Now, let me explain in a lame man way that the deposit (money) you have in your Forex
account with a broker is refers to as collateral (margin) for getting a loan (leverage) from
the broker to trade any required amount of currencies.

2. LIQUIDITY: Because the Forex Market is so large, it is also extremely liquid.
This means that with a click of a mouse you can instantaneously buy and sell at will. You
are never 'stuck' in a trade. You can even set the online trading platform to automatically
close your position at your desired profit level (limit order), and/or close a trade if a trade
is going against you (stop order).
markets, you can only make money if shares are rising, but in economic recession and
falling 'bear' markets, there is little chance of making big money. Forex is different. One
of the most exciting advantages of FX trading is the ability to generate profits whether a
currency pair is 'up/bullish' or 'down/bearish'. A trader can profit by taking a 'long'
position, (buying the currency pair at one price and selling it later at a higher price), or a
'short' position, (selling the currency pair and buying it back at a lower price). For
example, if you think the US dollar will increase in value vs the Japanese Yen then you
will buy Dollars and sell Yen (go long). If you think the Yen will increase in value
against the Dollar then you will sell Dollars and buy yen (go short). As long as the trader
picks the right direction, a potential for profit always exists.

4. 24 HRS: From Sunday evening to Friday Afternoon EST the Forex market never
sleeps. This is very desirable for those who want to trade on a part-time basis, because
you can choose when you want to trade - morning, noon or night.

Online Forex firms offer free 'Demo' accounts to practice trading, along with breaking
Forex news and charting services. These are very valuable resources for traders who
would like to hone their trading skills with 'virtual' money before opening a live trading
account. I will also want to advise the newbies in the Forex market to at least “Demo
Trade” for 2 months uninterruptedly before going live trading because this will really
help build up strong emotions in live trading. Also, demo trade with what you will fund
your live account with. Take for instance, you wish to fund your live account with $500,
don’t demo trade more than what you will fund your live account with.
You must also take the demo trade serious and maintain the account like a real live
account. Apply all strategies on demo account before applying it on live account.

6. MINI & MICRO MINI TRADING: One might think that getting started as a
currency trader would cost a lot of money. The fact is it doesn't. Online Forex
Firms/Brokers now offer 'mini' trading accounts with a minimum account deposit of only
$200 - $500 with no commission trading. This makes Forex much more accessible to the
average individual, without large, start-up capital. But my personal perspective about the
Forex market is that the more money you have to trade the more you enjoy trading Forex.

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