Lesson 3. What are the advantages of Forex market?
There is a number of reasons to choose trading on Forex market as a way to make money:
1. High liquidity and volatility. Liquidity means that there is a lot of money fluctuating in this market – more than 5.3 trillion dollars a day.
As a result, it takes fractions of a second to open and close positions. Volatility means that exchange rates are usually very lively, and you can profit on the moves of the price anytime you like.
2. All trading is done through the Internet. There is no physical location, where investors go to trade currencies.
All the currency trading we will do, will be done online. You will just need to download special software from the website of a broker or use a web trading terminal.
Trading terminal will connect you to the real-time quotes of various currencies.
3. Forex market is open 24 hours a day, 5 days a week – from Monday morning till Friday night.
You don’t have to wait for specific trade sessions like when trading stocks – trade when you have time!
The main participants of trading are commercial banks, so currency quotes are set at the interbank market. You will be able to trade at this market as well through a Forex broker.
4. Lower cost of trading. The cost you pay to your Forex broker is much less than the amounts you would have to pay to trade other securities such as stocks.
5. The ability to use leverage, which provides you access to trading with bigger amounts of money than you have on your deposit.
For example, if the leverage is 50 to 1, it means that for every one dollar you have in your account, you can control 50 dollars in the Forex market.
Thus, the leverage increases your potential profit. Beware though, that if the price moved against you, the amount you lose will also be bigger because of leverage.
As a result, you have to understand the risks and choose the reasonable, not the maximal leverage size.