Forex is one of the most sought-after investment platforms due to the high liquidity it offers, with daily transactions grossing more than $1.3 trillion. Besides, approximately 80% of forex transactions have a dollar leg, which facilitates the trade of numerous currency pairs.
Another important advantage of trading in the forex market (as compared to trading on other platforms like the stock and commodities markets) is that forex operates around-the-clock. Most investment platforms are restricted by trading hours, which tend to restrict their liquidity.
Why should you Consider Trading in the Forex Market?
One of the most important motivations to trade in the forex market is the high leverage it offers, which may be as substantial as 100:1. This leveraged trading allows traders to execute deals up to $500,000 with a small initial margin of $5000. Other advantages of trading in the forex market are:
- Limited slippage: Most forex brokers offer instantaneous trade executions. There is generally a limited variation between the quoted and the execution price. These prices tend to differ on the stock and futures market, since deals are executed through an exchange. It must, however, be noted that forex trade prices may be subject to slippage during high market volatility.
- Low transaction cost: Forex transactions are commission-free, unlike in the case of the stock and commodities markets. Besides, the over-the-counter structure of forex eliminates other transaction costs like exchange and clearing fees.
- Market transparency: The higher the level of transparency in the market, the better the execution of trades. Unlike the stock and futures markets, the forex market is not influenced by corporations and private entities. It is only impacted by macro factors like political and economic conditions in a nation.
While an investor has several motivations to trading in the forex market, it is important to remember that like any platform forex has certain limitations. The biggest pitfall of forex trading is that its high leverage while maximizing profit potential also magnifies the potential of loss. Some online brokers, however, give traders the option to choose their desired amount of leverage.
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