With the internet and the rise of online brokerages it has never been easier to trade a wide range of instruments and markets from the comfort of your own home. So why do so many people opt to trade Forex and why you should you consider trading Forex yourself? In this article we take a look at some of the advantages that online Forex trading has when compared with other forms of financial trading.
24 Hour Market
Forex has one major advantage over other asset classes. The Spot FX market operates 24 hours a day during the week, with the markets opening Sunday night in New Zealand and closing late Friday in New York. This makes much easier for those who have work or other commitments to actively trade. Stock markets which have traditionally been the venue of choice for retail traders typically operate between 9am and 5pm. This makes it very difficult for those with full time jobs to successfully trade these markets, as they may simply not have the time and opportunity to open and close positions during the working day. While Forex traders have the option to come from home work and place trades during their downtime in the evening. Stop Loss and Take Profit orders can also mean that traders are not required to actively manage their accounts when they have more pressing concerns.
Low Transaction Costs
As you may have already heard, the global Forex markets is the world’s largest financial market. Everyday over $3 trillion dollars of Spot FX and Forex futures are traded. While this isn’t in good in itself it does have some useful ramifications for retail traders. When compared with other forms of financial trading the transaction costs in Spot Forex trading are substantially lower. This is in-part due to the size of the market and in-part due to the fact that Spot Forex is an interbank market. As an interbank market, Forex is not traded on centralised exchanges but rather between investment banks, financial institutions and private institutions.
This radically reduces transaction costs with traders not having to pay hefty commissions to brokerages who are required to purchase seats on the exchange. Stock traders with small accounts often find a significant chunk of their profits being lost in the form commissions and spreads. The total transaction cost involved in a typical FX trade is less than 0.1% of the total transaction size. Not only is this great news for those with small amounts of capital, it also makes high frequency trading strategies much more viable. All this means that the Forex trading markets are within the reach of a greater number of retail traders who may not have the necessary capital to trade stocks.
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Advantages of Margin Trading
Additionally, Forex is a form of margin trading. A trader puts forward only a fraction of the total transaction value when he places a trade, with the brokerage essentially lending the client the rest. This means traders are able to trade much larger sums than they would otherwise be able to do. For instance with many brokerages a trader maybe able to take on a position worth $200,000 with as little as $1000 in their trading accounts. While it is true that it is possible to trade other markets on margin, Forex brokerages are able to offer significantly more leverage (the amount given on margin). With some regulated brokerages offering traders up to 1000:1 leverage. This means a trader could take on a position worth $1 million dollars with as little as $1000 in his trading account.
While this of course increases the risks involved, it also massively increases the potential returns a trader can make. If a currency pairing was to move a 1% in traders favour on a trade where he or she had used 1000:1. That particular trader could expect increase the balance of their account ten-fold. The potential for such returns is part of the reason why so many people become interested in trading Forex online.
Large Global Community
The accessibility of Forex has helped create a huge community of retail traders who trade the financial markets from the comfort of their own homes. This provides many with yet another reason to get involved with the Forex trading system, as it’s possible to find huge amounts of discussion, advice and help on the subject matter. Whether you speak English, Russian or Hindi, you will find a large community of dedicated traders who will be more than happy to help you out and discuss the FX markets with you.
Forex: The World’s Most Accessible Market
Forex is one of the most accessible financial markets around and this is probably the reason why online Forex trading has become so popular. Traders can trade the market 24 hours a day during the working week, making Forex trading something which can fit around other commitments. Additionally, the structure and nature of the FX markets make it much easier for those with limited capital to try their hand at trading. Unlike with traditional stock trading, traders wont see the hard one profits eaten away by hefty commissions and can use leverage to trade positions larger than they otherwise would be able to do. All of this explains the huge growth in the number of people trading Forex, with Forex being arguably the most accessible form of financial trading.
Want to read more tips about the Forex market? We have created a series of articles with in-depth knowledge about the subject. Take a tour and enjoy the free insights:
Tip #1 | Tip #2 | Tip #3 | Tip #4
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