Advantages of Forex Trading

Because the Forex market is running continuously for 24 hours during the week, there is very little gapping, which can be a common problem with stock trading. For example you may have bought XYZ stock at $24.20 on Tuesday just before the market close with a stop loss set at $23.50 to protect you against any major losses. During the night, when the market is closed, there is a major announcement that affects the company trading as XYZ, and the market opens on Wednesday morning, with XYZ trading at $22.10. Not only has it gapped down $3.10 overnight, it has also opened $1.40 below your stop loss giving you a much bigger loss than you ever anticipated. This rarely happens in Forex trading, but having said that it can happen, especially over the weekend as this is the only time the Forex market is closed. But it is rare! I can give you one example where I was caught out on a weekend. Late 2003 I was in open positions over the weekend where I was basically going against the US dollar, and then US troops captured Saddam Hussein. This was very positive for the US dollar, which then opened much higher on the Monday inflicting some financial pain my way. I have learnt my lesson and I am rarely in open positions over the weekend. As you will soon see, with regards to Forex trading, you only have a small amount of currency pairs to choose from. This is a very small basket compared to the number of stock choices you have. On the US stock exchanges, there are literally thousands of stocks to choose from. Here you have the problem of finding a needle in a haystack. You will see that your Forex choices are much, much narrower, hence there is certainly a lot less searching and analyzing required. All of your efforts and concentration can be targeted in a very narrow field, so you can get on with the trading sooner than later. Once you have a look at a few different Forex charts, which I discuss later, you will see some very nice smooth trends that seem to occur quite often. Now this is something that you may not understand if you have never traded a financial instrument before, especially if you have never looked at charts. For those stock traders out there, you would be very aware of stocks that just get stuck in a range for what seems forever, or stock charts that show plenty of gaps and a general ugly sort of look. I am not saying that Forex doesn't range. It does, trust me, but when it breaks out it is normally something very good. You will understand this once you start looking at the charts. The low cost of trading is also important. Most trading is conducted electronically over the internet on your nominated broker's online account. The cost is minimal for each trade as there is normally no commission involved, however you do have to cover the spread. This will be explained shortly, but it can be very cheap to trade considering some pairs now have less than one pip spread. Further to the low cost, you can open an account with a broker for a very small amount, and in some cases, just a couple of hundred dollars. Granted you are not going to make millions from this, but it is a start. I will cover brokers later.

Some Further Advantages of Forex Trading

So we need somewhere to trade and as stated earlier, this is all done online via the internet. The good thing about this is that most brokers offer unlimited demonstration platforms where you can practice trading for as long as you like without risking any of your own money. This is brilliant if you want to try out different trading methods and ideas. Commonly referred to as 'demo trading,' there is no reason that you can't have both a 'live' and 'demo' account with the same Broker.

Click Here to Open a Demo Account

Just ensure you don't get them confused. Demo trading is quite a useful tool where you can try out different things etc, but please be warned, trading on a 'demo' account is nothing like trading on a 'live' account as there is zero risk with a 'demo' account and therefore your emotions do not come into play at all. It is like walking across a plank of wood 6 inches above the ground, compared to walking across the exact same plank of wood ten stories up in the air. I'm sure your emotions would be different, and the same goes for trading. When there is real money on the line, you will think and act different! Trust me on this. And to take this one step further, Forex data is live and it is free. Unlike a lot of stock data where you have to pay a monthly data subscription fee or stuck with 15 minute delayed data, your Forex data is all freely provided to you by your chosen broker's trading platform. I’ll have more on brokers and their platforms later.