Why Trade on FX?

By mosesbet · Filed Under Forex Brokers Comments Off on Why Trade on FX? 

Why Trade on FOREX?

Trading on the foreign exchange markets (FOREX, FX) has become extremely popular investors market.  The huge liquidity of these markets, with an average daily turnover of $3.98 trillion, has made it an extremely important market for positional traders and speculators trying to make money off its movements.

The majority of the $3.98 trillion turnover in 2010 comes from spot transactions, forward contracts and foreign exchange swaps.  For more information on what these financial orders mean, read FX instruments.

Unlike stock markets and indices, FOREX isn’t a physical market with a physical centre in Canary Wharf (like the FTSE).  Instead, the FX markets are entirely digitised and connected through Interbank markets, and online FX platforms.

The primary advantage of foreign exchange trading is its size.  FOREX is 50 times bigger than the equity market and 15 times larger than the government bonds market.  Its propensity for global trade and the amount of equity invested makes it worth almost $2 trillion dollars.  The FOREX markets are the closes thing anything can resemble to a “perfect competition” market.  Individuals have a much fairer advantage trading on it than other markets, where larger institutions and banks can leverage themselves or use their capitalisation to influence the market in their favour.  As such, you can make more profits trading on the FX than regular share trading or spread betting.

Another major advantage for FX traders is that FX platforms allow you to take much more leverage positions.  For instance, at DBFX the leverage and margin is 200:1, this means that you can deposit $1,000 and make trades with a value of $100,000.  This allows you to make infinitely more profits on correct speculations and futures than other types of speculating.  Most spread betting platforms, for example, only provide a margin of 10% as opposed to 0.5%.  This means that you can only make trades with a value of $10,000 with the same $1,000 deposit.  Of course, the downside to trading on highly leverage positions is that you can lose far more than your initial deposit.  You need to be very careful and make sure you are fully aware of the risks before opening up an online FX deposit account.

If you are seriously interested in FX trading but are ready to risk any money, than you can download a free demo account with DBFX.  This gives you $50,000 in “play money” to invest in the foreign exchange markets.  This lets you test trades with zero risk, monitor your trading positions, and execute difference trades such as forward contracts and currency swaps.

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