Benefits of Forex market
So, what do we have as a consequence? Everything said above can be interesting or even exciting but the main question remains – why do I need it? Why read this study book and not the one for the stock market, or a job vacancy newspaper or a fiction book? Is it because lately you’ve heard something about Forex that attracted you? Maybe you already have a stable job or some savings that you would like to work for you…
Let us explain you some key advantages.
1. Millions are not essential
If you start to compare the Forex and Stock markets, the first thing you would understand is that there’s no use on the stock market without a couple of million U.S. dollars. A good investment in this case would be to invent a time-machine, travel back in time, buy the first shares of Intel, Apple or Microsoft and come back to the present as a billionaire.
In fact all you can do is to buy something and just wait, wait and wait, praying for no fall to happen. In contrast, you can access the Forex market with just a hundred dollar and a broker with a good credit leverage. Margin trading allows a trader with a hundred dollars on his deposit to operate with tens of thousands of dollars and to make a profit using those thousands, not the original hundred which now acts as a mortgage. Furthermore, a currency is nothing but a share of the country it belongs to. Money is the most precious government note, something like a share that always has demand.
2. Liquidity
Liquidity of Forex market is one of the important reason for choose this market. With more than 3 trillion US dollars daily turnover Forex market is the biggest financial market in all around the world. So, you are able to open and close positions almost suddenly as there is always somebody ready to keep the market and start trading with you. Furthermore, you will always find somebody with the proper amount of money as there’s nothing but money in the Forex market. If you wish to buy or sell a certain amount of shares, however, it may not be possible and you could be left displeased. This is quite a normal situation in the stock market as well as the problem of delays in transactions that may cause further risks.
Eventually, you should always remember that when trading on the stock market you can risk being left with a useless bunch of paper that can’t be sold because they are worthless. Well, at least you can make a nice cut out of them! The Forex market is different. It deals with major and most steady currencies of the world; so, you are always able to purchase even a billion monetary units of any currency and in seconds sell it without any problems.
3. Low risk
Forex has minimal spread in comparison with any other market. Even the steadiest market– the gold market – has about a single-order difference between the purchasing and selling price although gold has been in a rising tendency for the last 20 years!
The price variation change for shares on the stock market is also many times higher than the variation of exchange rates on Forex. A variation of more than 1% in a 24-hour period is a big infrequency in the Forex market while the stock market has much greater fickleness as was recently exemplified in the financial crisis and the collapse of January 2008.
Certainly, you can cite as an example the collapse of the Russian currency from 6 to 20 and even to 30 rubles to the U.S. dollar, but such a five-fold fall happened only once in many years, and there were a large number of forecasts foretelling it. Compare that to the YUKOS company situation when the price for its shares fell from 20 U.S. dollars to 15 cents after its owner was arrested! Furthermore, while a landslide of prices for shares is generally pure evil for an investor, a trader can make a profit when a currency drops as well as increases. Ultimately, the major part of all shares lose their value completely if their parent company goes bankrupt. That is highly improbable with a currency.
4. No time restrictions
In contrast with a stock exchange where trading is only allowed during the session’s working hours (the working hours of a country considered) the Forex market is available 24 hours every day. You don’t have to wait for a tender to start as it never stops. As well 24-hour accessibility Forex doesn’t have gaps (unexpected changes in price) acting at the start of a trading session, as shares are the indicators of a company’s state of matters and news affecting a company can come out when the market is closed.
There can be a wide spread when unbelievable news comes out between two trading sessions and the next session starts with subsided rates. It’s then that investors tear their hair out. You could say the stock market was like some kind of a magic box of which the interior mechanics are only comprehensible to the company’s owners. There are no brakes, gaps or magic boxes in the Forex market. Everything is public, open and clear. It all make available a trader with opportunity to analyze the market, plan his actions and even automate his trading!
5. Predictable Market
If you compare the growth and drop of Forex exchange rates with the mechanics of a stock market you will see that forecasting the stock market is all about trying to be the first to get fresh information that will affect the price of that company’s shares and perform the necessary order to profit from that information. Speed of performance is also necessary because, if you fail to be amid the first, there’s no use in buying those shares anymore.
The most successful traders in the stock market are insiders, people who get the information from the sources unavailable to the extensive masses. But there’s one problem – it is illegal. For instance, in 2009 a billionaire from Sri Lanka was imprisoned for insider trading: he found some “friends” in big companies that recommended him when to buy or sell and he gained millions. If you remember the collapse of the YUKOS Company, the Russian government made controversial statement several times a day and insiders took advantage of that situation whereas small investors and common people had to drag on the coat tails of those super-profitable deals.
Forex is another story! The up and down of rates in this market are dependent on regular mathematical and economic rules. There are quite a lot of them so it may seem the market is disordered.
You may compare those rules to a crowded, noisy street that creates an impression of sound disorder but if you listen to them carefully you will hear that each and every sound has its own source and place in the general picture. The Forex market is like that: after you learn statistical data-analysis methods and factor influencing the market you will be much better positioned to forecast the rises and falls of currencies successfully.
6. Availability of information for analysis
Forex market is the biggest international financial market, there for price activities are not by one operator (Banks, Traders and market makers). All the FOREX market activities information are available free for all traders. This situation is unique for Forex market traders because in the other markets (for example STOCK market), financial information is very expensive or out of access.
Negative PR for a company may lessen the price of its shares, whereas a false leak of insider information (from the principal of a company, for example) may send prices up. There is no such term as “insider information” in Forex so there cannot be any informational swindles, crossed operations, fake bankruptcies or other similar issues that investors might face. The Forex market is obvious, impartial, accessible and much more predictable.
Written by FxErvin