There are various reasons why you should trade forex, which ranges from high volatility and liquidity to Zero commission fee.
As a market place for many institutional clients and business organisation, it has proven 100% functionality, and as of now, trillions of dollars are traded daily on the forex market.
Anyone aspiring to become a trader should have a particular reason in mind, but do not worry if you don’t have one now I’m sure by the end of this article you will be thrilled by the various opportunities and benefits you gain by trading and you will be able to develop numerous reasons to become a trader.
1. High volatility ($6.6 Trillion per day).
On average, about $6.6 trillion is being traded daily on the forex market. Other stock market sees less than this value on a daily bases.
This enormous volume traded daily enhances the price movement of various currencies, such that, in just a short period the price of a currency pair can either rise or fall at a tremendous rate, allowing traders to gain massively.
However, you should be mindful because the market can quickly turn against you at any time, so you must have a proper risk management plan to reduce loses and maximise profit.
The volatility of this market makes it possible for a particular major currency pair like EUR/USD to move significantly at a rate of 50-100 pips on a daily bases.
Usually, the price can be above 100 pips if a situation such as political, economic, and social events warrants it.
2. Forex liquidity (Plan Your Move With Massive Traders).
The forex market is highly liquid; that is, traders can buy and sell currency pairs instantly at any given point in time, excluding weekends.
Liquidity is calculated as the number of trades or pending trades a particular market offers at a given point in time.
In the forex market, buyers and sellers are continually demanding for an asset, by asset I mean currencies. This asset can be supplied to both the buyers and sellers without necessarily reducing the price of the asset this occurs due to high liquidity.
This feature makes it impossible for traders to be stuck in the market while trading, which frequently occurs in other stock markets.
You even have the opportunity to set your profit target on any trade; this would automatically close your position on that trade when the target is reached.
3. 24-hour market system (Busy Day, No Problem).
In Forex there is no restriction to when to trade.
The market never sleeps it is always available for traders to utilise their potentials, this feature is quite impressive because you can either choose to trade in the morning, afternoon or night, even in your sleep your trades can be running.
Therefore for an individual who works in the morning and noon, he/she has the opportunity to trade at night.
This long hour system is available because trades are carried out in over the counter (OTC) markets,
The transactions take place outside a centralised exchange system. But it is important to remember that the volatility or activeness of a particular currency pair varies within the 24-hour market system.
Although the market is available 24-hours a day, it closes on Friday night and opens again on Sunday evening.
It is only closed to retail traders and not to international organisations and central banks.
As a result of this,
There are changes in prices of currency pairs during the weekend; this change in rates is referred to as a gap.
It is essential that traders close every opened position or set stop loss and profit target at the end of a trading week to prevent the gap from affecting your trade.
4. Effective trading sessions (Strong Moves, High Profit).
Even though the forex market is opened 24/7, it doesn’t mean that it will be active for the whole day.
You can make a profit when the market goes up (bullish) and even when it comes down (bearish), but there are times when the market remains still, this is where the benefit of forex trading session comes into play.
The forex market has four major trading sessions which include: the London session, the Tokyo session, the Sydney session, and the New York session. Traders usually trade on one particular trading session, but you can also decide to trade the four sessions if you are capable of handling them.
Each of the four trading sessions has a particular time when trading activities remains active.
- The London session also called European session ranges from 7 a.m. to 4 p.m. (GMT)
- The Tokyo session also called Asian session ranges from 11 p.m. to 8 a.m. (GMT)
- The New York session also called North American Session ranges from noon to 8 p.m. (GMT).
- Lastly, the Sydney session ranges from 10 p.m. to 7 a.m. (GMT).
Each of this session has a particular currency pair it supports.
5. Decentralised market system (Trade Anywhere In The World).
A decentralised market system makes it possible for traders or investors to deal directly with each other through various digital means.
In these ways,
Buyers and sellers don’t have to be physically connected to buy or sell currencies, as long as you have an internet connection on your phone or laptop you can easily trade any currency pairs.
Forex traders can also utilise the internet or other trading software to check the prices or quotes of currencies from different forex brokers in the world.
6. Leveraging and Margin (100X Your Budget)
Leveraging in forex enables traders to controls a much larger market position with just a little margin or deposit; it is an opportunity for traders to make big profits.
In forex, there are three lot sizes utilised by traders, and they include
- Standard lot (100,000 units),
- Mini lot (10,000 units),
- Micro lot (1,000 units).
In layman, lot sizes are just the number of currency unit needed to open a trade.
In EUR/USD to open a standard lot, you would need an initial margin deposit of $100,000 while for opening a micro lot, you would need an initial deposit of $1,000.
a trader can open a standard lot with just the initial deposit for a micro lot with the help of leverage.
THE LEVERAGE VARIES WITH DIFFERENT FOREX BROKER;
some broker may offer leverage as high as 1000 to 1, which signals that with just $100 margin deposit a trader can buy or sell currencies worth $100,000.
Leverage is an excellent opportunity for traders to gain massive profit with only a little deposit.
7. Access to Demo (Not Ready to Trade!!)
Traders who are new to forex can learn the pros and cons of trading by opening a Demo account, and this helps them trade without risking their capital.
Most traders utilise the Demo account to develop a new and effective trading strategy, which they later use on their real account.
Trading a Demo account can serve as a practice session for traders to develop different skill in trading.
The Demo account can be accessed easily through the Metatrader 4 app, which is readily available on the Google play store or any broker for that matter.
Also, some forex brokers support trading in cent; therefore, with just a little capital, different trading positions can be opened.
Cent account helps in minimising and maximising the amount of loses and gains generated on a particular trade, with this it is easier for a learner to trade real account without possibly losing his/her trading account.
8. Opportunity to Trade Different Currency Pairs
Forex market enables you to trade a wide range of currency pairs.
Trades are usually carried out in pairs;
The EUR/USD consists of two currency, with EUR representing the base currency and USD representing the quote currency.
The currency pair is just a quotation of the value of the base currency against the quote currency.
The availability of different currency pairs makes it possible for traders to navigate through different trading sessions, gaining fresh profits.
Traders have diverse currencies to trade on they are not restricted to a particular currency, and they can even decide to trade cryptocurrency if price action is showing a positive systematic movement.
There are four main types of currency pairs which include:
- Major currency pairs; EUR/USD, USD/JPY, USD/CHF, etc.
- Minor currency pairs; GBP/CAD, NZD/JPY, CHF/JPY, etc.
- Exotic currency pairs; USD/SAR, USD/THB, USD/RUB, etc.
- Emerging currency pairs; EUR/BRL, BRL/USD, AUD/CNH etc.
9. Zero commission fees incurred (Not all Brokers provide This)
Forex market incurs zero external or internal fees; there is nothing like government fees, brokerage fees, tax fees or exchange fees, this is an excellent opportunity for traders to utilise their capital fully without considering paying for any other external fees.
Although zero commission fees are incurred on the forex market, most retail brokers are rewarded for the services they render through a means called a spread.
A spread in layman is the extra amount a broker adds to the price of a particular currency pair, and this is the way they generate their profits. This additional amount varies; sometimes it can be as low as one pip.
Forex brokers usually quote two varying prices: the bid and ask price.
The bid price is the rate at which you can sell a base currency
The asking price is the rate at which you can buy a particular base currency,
the difference between the two prices is referred to as the spread.
Trading the forex market is an excellent opportunity for individuals and firm to utilise their income in generating profit fully. Many things mentioned above have been put in place to make trading more flexible and attractive, but you should be aware that knowledge and time are needed to become a successful trader.