The foreign exchange market (Forex, FX, or currency market) is a global decentralized market for the trading of currencies. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends.
There are many advantages in trading Forex. Here are a few reasons for why people trade Forex:
1. Forex is the largest financial market in the world
The Forex market is considered to be the largest financial market in the world. Because the currency markets are large and liquid, they are believed to be the most efficient financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world. It has a huge trading volume representing the largest asset class in the world leading to high liquidity.
2. Markets are open 24 hours a day, 5 days a week
The Forex market has continuous operation: 24 hours a day except weekends. The Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade: morning, noon, night, during breakfast, or in your sleep.
3. Highest liquidity
The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing. According to the 2010 Triennial Central Bank Survey coordinated by the Bank for International Settlements average daily turnover was $3.98 trillion in April 2010.
4. High Leverage
In Forex trading, a small margin deposit can control a much larger total contract value. For example, a Forex broker may offer leverage of 1:100, which means that a $50 dollar margin deposit would enable a trader to buy or sell $5000 worth of currencies. Similarly, with $500 dollars, one could trade with $50000 dollars and so on. Remember this high degree of leverage can lead to large losses as well as gains.
5. No additional commission and low trading cost
Trading Forex has much lower transaction costs than other investment products. Most Forex accounts trade without a commission and there are no expensive exchange fees or data licenses. Traders just pay the spread (the difference between the buying price and the selling price) to enter the market. This spread can be wide and is a significant cost of trading which is always displayed on your trading screen.
6. Ease of access
The Forex market is the largest and most liquid market in the world, it has become one of the most popular markets to trade globally due to its ease of access and availability. Online Forex brokers give traders of all levels easy access to forex trading platforms, meaning that the world of online trading has never been more accessible.