Why Trade the Forex Market?

24-hour trading

The Forex market is the only 24-hour market, opening Sunday 5 PM EST, and running continuously until Friday 5 PM EST. Whether it's 6pm or 6am, somewhere in the world there are buyers and sellers actively trading foreign currencies. Traders can always respond to breaking news immediately, and P&L is not affected by after hours earning reports or analyst conference calls.

After hours trading for U.S. stocks and futures brings with it several limitations. ECN's (Electronic Communication Networks), also called matching systems, exist to bring together buyers and sellers - when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, traders must wait until the market opens the following day in order to receive a tighter spread.

Liquidity

With a daily trading volume that is 50x larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the Forex markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price.

Because of the lower trade volume, investors in the stock market and other exchange-traded markets are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction. 

100:1 Leverage

100:1 leverage is commonly available from online Forex dealers. At 100:1, traders post $1000 margin for a $100,000 position, or 1%.

The trader needs to clearly understand the risks associated with margined trading before participating in the market. The most effective way to manage these risks is to diligently follow a disciplined trading style that consistently utilizes stop and limit orders. Devise and adhere to a system where your controls kick in when emotion might otherwise take over. Leverage is a double-edged sword and necessitates the use of proper money management. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

Trading potential in both rising and falling markets

In every open Forex position, an investor is long in one currency and short the other. A short position is one in which the trader sells the base currency in anticipation that it will depreciate. This means that trading potential exists in a rising as well as a falling market. 

The ability to sell currencies without any limitations is another distinct advantage over equity trading. In the US equity markets, it is much more difficult to establish a short position due to the Zero Uptick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale.

Risk Warning 

Forex trading involves substantial risk of loss and is not suitable for all investors.

Before deciding to participate in Forex trading, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. 

There is considerable exposure to risk in any foreign exchange transaction.  Any transaction involving currencies involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency. 

More over, the leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin call within the time prescribed, your position will be liquidated and you will be responsible for any resulting losses.  Investors may lower their exposure to risk by employing risk-reducing strategies such as  stop-loss or stop-limit orders.

There are also risks associated with utilizing an Internet-based deal execution software application including, but not limited, to the failure of hardware and software. Back up systems and contingency plans are in place to minimize the possibility of system failure, and phone trading is always available.