Four Advantages to Trading Forex Over Stocks

ForexNewsNow | Published on September 19, 2011 at 4:54 am

ForexNewsNow – The foreign exchange market is flourishing, as evidenced by a growth rate of nearly 33% per year globally since 2007, according to Celent. It now comprises nearly 200 billion dollars a day in transactions, which represents 13% of the total daily cash transactions (all forms of investing combined), which is estimated at 1,500 billion dollars total, according to the latest report from the Bank for International Settlements.

Why are retail investors interested in Forex?

Firstly, currencies are relatively uncorrelated to other financial asset classes and much less volatile than prices of shares of stock. So, in a period of turmoil in the equity markets, private investors may turn towards markets that are relatively more stable, such as the global forex market, and invest.

Secondly, trading with foreign exchange brokers can be quite lucrative if one is successful, due in part to the leverage offered by some forex trading brokers (keep in mind that leverage can work to your benefit just as it can work to your detriment). Some experienced traders may go so far as to speculate on currencies using millions of dollars in leverage. Almost anyone can invest up to 100 times the margin requirement on the values of specific currency pairs, which can make a small investment go a long way. This, of course, may also increase the pace of losses in an unsuccessful investment.

Thirdly, unlike stock exchanges, currencies can be traded 24 hours a day, 5 days a week. When one market closes, another opens at the other end of the world. Thus, it is possible to trade various currency pairs, ranging from the “major pairs,” such as the EUR/USD or GBP/USD, to more “exotic pairs” like the USD/THB (Thai baht) at any time during the work week.

One final benefit to individual investors who trade forex is that online forex brokers typically allow retail investors to test their trading platforms via free demo accounts, allowing them to practice trading forex in realtime before investing in the forex markets. Trading without risk with the same conditions as investing with real money provides traders a great opportunity to understand the dynamics of forex trading.

Some interesting statistics:

  • 13%: The percent of spot forex trading conducted by individual investors.
  • 400 billion dollars: The amount of money exchanged per day via spot forex trading on EUR/USD, which is the most traded pair before EUR/CHF.
  • 4 trillion dollars: The amount traded in the foreign exchange markets globally on a daily basis.

Which regions trade forex?

Asia accounts for nearly 40% of the volume traded in the forex markets. The Japanese people are particularly fond of forex, as the Bank of Japan regrettably realized when it discovered that its own population speculated on the rise of the yen even though it was desperately trying to reduce its value. Europe comes in second with 30% of the transactions, and America is third with 20%.

The main online brokers for individual investors are FXCM, Oanda, Saxo Bank, Forex.com, among others. Click here to read our comprehensive Forex broker reviews.

Most of them use either their own trading platform or traditional trading platforms such as Metatrader 4 or 5, for example. A recent development in the online forex broker industry has been the emergence of mobile trading. Individuals can now invest from their smart phones through iPhone/iPad applications.

 

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