The benefits of investing in the foreign exchange market are well publicised owing largely to the marketing efforts of various forex brokers. In addition to this, the success stories like that of George Soros, which the forex market has thrown up in the past, have also worked towards making people realise the kind of profit potential possible in this market.
However, the more cynical individuals in the online community would still question the benefits that the forex market holds. For the benefit of such individuals, the following are some of the many advantages that foreign exchange trading offers to traders.
No Commissions and Hidden Fees
If you consider any of the other investment markets such as stocks and futures, you will find that transactions are either subject to commissions or some form of hidden fees are charged by the broker for his services. This is not the case in the foreign exchange market because the broker gets his payment through spreads.
Variable Lot Sizes
Lot sizes are the amount of units that a trader can buy. In most investment markets, there are certain restrictions placed on the lot sizes in terms of both maximum and minimum. In the forex market, especially the spot forex market, the lot sizes can vary greatly depending on the convenience of the foreign exchange trader.
24 Hours Access
One of the biggest differences between the foreign exchange market and other markets is that the former is open at all hours in a day. This is crucial because it affords a great deal of freedom and flexibility to the forex trader in terms of when he chooses to play the market.
Completely Independent Market
The foreign exchange market is decentralised which means that there is no central authority overseeing it, as is the case with other investment markets. This means that the forex market is driven by market forces only and nothing else. Hence, profits and losses are determined on the basis of merit and, in some cases, luck.
The Element of Leverage
Leverage exists in virtually all investment markets and even many business deals. However, the extent to which a forex trader can use the element of leverage is far greater than in other markets. In some cases, brokers even offer leverage to the tune of 1 to 200 which increases the purchasing power of the trader.
High Levels of Liquidity
The forex market is so flexible and versatile that it can absorb all kinds of situations and skill sets. In stock or other types of investment markets, if the market shifts too much to one side, a trader can find himself stuck in a position that he no longer wants to be in.
However, in foreign exchange, this is never a problem because of the inherent liquidity of the market. In different words, the forex trader would never be stuck in a situation because there will always be someone willing to be on the other side of the table from him.
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