“Why trade Forex”? That’s a question I get asked a lot, especially by those who are unaware of the foreign exchange market .This article will seek to answer this question by systematically laying out both the advantageous and disadvantageous of the world’s largest financial market.
As was mentioned earlier on, the forex market dwarfs all stock markets of the world in volume. It trades about $4 trillion EACH DAY. To put this in perspective, the New York Stock Exchange (NYSE) trades around $28 billion a day. The entire U.S. stock market trades about $191 billion daily. The Futures market trades about $437 billion daily. None of these even come close to $1 trillion, much less several trillion.
What advantage is that to you?
Greater volume means better fills on your orders (less slippage). Slippage is where you click on a market price yet get filled at another price by the time your order can be filled. The more volume at each price level, the better those fills become. Therefore, the forex market offers the least slippage of any market. Keep in mind too that slippage is a “real” trading cost.
On top of better fills, the spreads are less which means your costs are less and you can get into profitability sooner in this market due to that. Typical spreads are 2-4 pips on the majors and 4-7 pips on many of the crosses.
Comission free tradingYou have no commissions in this market since you don’t have to go through a broker on your way to the market maker. You simply deal directly with the market maker and therefore you don’t have a broker’s commission. This is a huge savings and allows you to get into profitability much sooner too. For instance, in stocks, you are charged twice (a buy commission and a sell commission). Ouch!
24 Hour a day Trading
Unlike stocks, that trade only 6 ½ hours a day, you can literally trade forex anytime 24 hours a day (Sunday evening through Friday evening). So instead of having to trade at work (like people do all over America with stocks), they can trade after work when they can really have some focus. So it doesn’t matter where in the world you are or what shift you work…you can trade forex. More tradable hours means more tradable opportunities.
Also, many important announcements come out for stocks when you can’t even trade them (before or after the bell). In forex, you can trade currencies at the time of the news announcement if you like.
No restrictions on Short Selling
In stocks, they make it hard to short. Why? They want stocks to go up and not down. They want an upward bias to aid corporate America in growing their stock prices. They have no incentive to help you short a horrible Short sellingstock or one with declining earnings.
However, in forex, you can short just as easily as you can “go long” (buy). The fills are just as quick. There isn’t any need for a firm to check for “shares to borrow” like in stocks. There are no “uptick rules” either. There’s none of that nonsense to worry about.
Besides, in currencies, you are always going long one currency in the pair and essentially short the other. So they don’t care which one you are long or are shorting.