There are many benefits and advantages of trading forex.
Below are a few reasons why so many people are choosing this market:
Low commissions
No clearing fees,
No exchange fees,
No government fees,
No brokerage fees.
Most retail brokers are compensated for their services through something called the spread “.Spot currency trading eliminates third party interference like the government and banks and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
LIQUIDITY:
The forex market is very liquid in fact it is often described as the world’s most liquid financial market on the planet.It refers to how much money is flowing through the market at any specific time.The forex market is highly liquid because it’s very large in size, and also a large amount of trades occur in the market on a daily basis exceeding 5 trillion dollars.This is an advantage because it means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will as there will usually be someone in the market willing to take the other side of your trade. You are never “stuck” in a trade. You can even set your online trading platform to automatically close your position once your desired profit level (a limit order) has been reached, and/or close a trade if a trade is going against you (a stop loss order).
LOW BARRIERS TO ENTRY:
You would think that getting started as a currency trader would cost a ton of money. The fact is, when compared to trading stocks, options or futures, it doesn’t. Online forex brokers offer “mini” and “micro” trading accounts, some with a minimum account deposit of $25. We’re not saying you should open an account with the bare minimum, but it does make forex trading much more accessible to the average individual who doesn’t have a lot of start-up trading capital.
NB: Did you know that the USD is most traded currency pair? It is responsible for 84.9% of all transactions that take place, also in the forex market, Liquidity drives volume.
EASY ACCESS:
Enter & exit easily rather than waiting for a counter party.Entire market operates electronically and does not have one location.All trade is easily placed with a simple click of a button.
FAMILIARITY:
The trader is at the very least familiar with their own national currency. The currency market is open 24hrs, 5 days a week this makes trading possible for anyone.
What is the purpose of financial market?
Raise capital,The transfer of risk,Price discovery (determined through interaction).
TERMINOLOGIES IN FOREX TRADING
BULLISH MARKET/TREND:
This term is used to describe an instrument that is increasing or rising in value, we say the market is bullishing.
THE BULLS:
This is used to describe those that are buying the market and speculating that the market would rise in value.
BUY/GO LONG:
This is the process of speculating a future rise or increase in price value with the aim of making profit.
BEARISH MARKET/TREND:
This term is also used to describe an instrument in which the price action is falling in value or going downwards. We can say the market is bearishing.
THE BEARS:
These are a set of traders who are in favour of selling the market thus speculating that there would be a future fall or decrease in price value of an instrument.
SELL/GO SHORT:
This is the process of speculating a future decline or fall in price value of an instrument.
CONTRACT FOR DIFFERENCE (CFD):
A contract for difference (CFD) is a trading derivative that enables traders to speculate on price movements for currencies without actually owning the underlying asset. A trader betting that the price of a currency pair will increase will buy CFDs for that pair, while those who believe its price will decline will sell CFDs relating to that currency pair. The use of leverage in forex trading means that a CFD trade gone awry can lead to heavy losses. This is also the most common used trading form used by independent traders.
INSTRUMENTS:
These are what the traders trade in the forex market.
ENTRY POINT:
This is referred to as the point of entry in which a trader decides to buy or sell the instrument.
STOP LOSS:
This is the point in which the trader decides to leave or exit the market after incurring a certain amount of loss.
TAKE PROFIT:
This is the point where the trader decides to also leave the market after making the targeted profit.
PIP:
The abbreviation \\\\\\\"Pip\\\\\\\" stands for percentage in point or price interest point. According to forex market tradition, a pip is the smallest whole unit price fluctuation that an exchange rate may make. Most currency pairings are priced to four decimal places, with a single pip in the fourth (and last) decimal place, with the exemptions of some such as the Japanese yen JPY.
PIPS are the most basic unit of measurement in forex trading and it’s important to learn how it works.
SPREAD:
A spread is the difference between a currency*s bid (sell) and ask (buy) prices. Forex Brokers or Brokerage firms do not charge fees; instead, they profit on spreads. Many factors determine the magnitude of the spread. Some of these are the size of your trade, currency demand, and volatility.
LEVEARAGE:
The use of borrowed capital to multiply returns is known as leverage. The forex market is known for its high leverage, and traders frequently employ these leverages to raise their holdings.
For instance, a trader may put up $3,000 of their own money and borrow $15,000 from their broker to bet against the EUR in a transaction against the USD. Because they have used relatively little of their own money, the trader stands to benefit significantly if the deal goes in the right way. A high-leverage situation, on the other hand, increases downside risks and can result in severe losses. In the above scenario, if the deal goes in the opposite way, the trader*s losses will increase.
LOT SIZE:
Currencies are exchanged in conventional increments known as lots. There are four typical lot sizes: standard, mini, micro, and nano. Standard lot sizes are 100,000 units of the currency. Mini lot sizes are 10,000 units, while micro lot sizes are 1,000 units.
Some brokers now offer traders nano lot sizes of currencies, which are worth 100 units of the currency. The selection of a lot size has a considerable impact on the overall profits or losses of the deal. The larger the lot size, the greater the gains (or loses), and vice versa.
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