17.12.2006 - Forex foreign exchange
The Advantages of Forex Currency Trading Online Forex currency trading is fast. It is easy to research currencies and the countries involved. Like any trading tool and financial instrument there are risks which need to be understood by the trader however Forex markets offer the following distinct advantages to the small and large traders alike, making Forex currency trading in many ways preferable to other markets such as stocks, options or traditional futures.
1 - The Forex market has huge trade volume.
Forex trading volume of more than 1.75 billion, over 3 times larger than the equities market and 5 times bigger than futures, gives online Forex traders nearly unlimited liquidity and flexibility.
2 - Forex works around the clock in all countries.
You can execute forex trading online 24/7. Currency markets are open around the clock and this makes Forex trading online an attractive component that will fit into trader preferred trading times irrespective of where you are in the world.
3 - No Bulls or Bears! Because Forex trading online involves the buying of one currency while simultaneously selling another, you have an equal opportunity for profit no matter which direction the currency is headed. Another advantage is that there are only around 14 pairs of currencies to trade, as opposed to many thousands of stocks, options and futures.
4 - Forex Trading online offers great leverage! You can make the most of your investment resources with Forex trading online. Some brokers offer 200:1 margin ratios in your trading accounts. Online Mini-FX accounts, which can typically be opened with as little as ?300, offer 0.5% margin, meaning that ?50 in trading capital can control a 10,000 unit currency position. This is another reason why people use Forex trading online as a way to make highly leveraged investments.
5 - Forex prices are predictable.
Currency prices, though volatile, tend to create and follow trends, allowing the technically trained Forex trader to spot and take advantage of many entry and exit points. There are probably more trading tools and Forex software available to traders than any other type of investment.
6 - Commission free Forex trading online.
Forex brokers make a small percentage of the bid/ask spread. There are no Forex dealing commission charges, no exchange fees or any other hidden fees. Currencies is a very transparent market. No longer any need to compute commissions and fees when executing a trade.
7 - Forex trading online is instant.
The FX market is fast. Orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down! Remember to also research and understand the risks of trading currencies by discussing with the forex brokers that you expect to use.
The Seven Most Traded Currencies in FOREX.
The listed currency pairs above look like a fraction. The numerator (top of the fraction or "left" of the / however you want to SEE it) is called the base currency. The denominator (bottom of the fraction or "right" of the /however you want to SEE it) is called the counter currency. When you place an order to buy the EUR/USD, for instance, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency PAIR, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency.
If this seems confusing then you're in luck. You can always get by with just thinking of the entire pair as one item. Then you are just buying or selling that one item. Thinking like this will still enable you to place trades. You only need to be aware of the base/counter concept for Fundamental Analysis issues.
So why is it important to know about the base/counter currency? The base/counter currency concept illustrates what is actually taking place in a Forex transaction. Some of you reading this, know that short-selling was restricted in the stock market *(Short-selling is where you sell a stock/currency/option/commodity first and then try to buy it back at a lower price later). But in the FOREX you are always buying one currency (base) and selling another (counter). If you sell the pair you are simply flipping which one you buy and which one you sell. The transaction is essentially the same. This allows you to short-sell with no restrictions.
You want to be able to short-sell with no restrictions so you can make money when the market drops as well as when it rises. The problem with traditional stock market trading is that the market has to go up for you to make money. With FOREX trading you can make money in all directions.
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