Published 4 months ago • 3 minute read

Why trade in Forex - Benefits of Forex Trading

As an investor, rooky or experienced, you might look for optimal trading conditions for making a profit. There are numerous reasons why so many traders across the globe opt for the Forex market. Here we are focusing on the several top benefits of Forex trading.

Leverage

Leverage is one of the core benefits of currency trading. It means that you only have to deposit a small amount initially, called a margin, to initiate a trade. Margin rates usually start from 3.3%, which equates to a leverage of 200: 1.

Margin trading means more efficient use of your capital because you only have to hedge a percentage of the total value of your trading position while maintaining a similar level of exposure in the market.

This implies that you increase your potential profit if the market moves in your favour but also that the level of potential losses can increase if the market moves against you.

For example, with $ 100 used in position margin, you could initiate a trade with a face value of $ 40,000.

Keep in mind that increased leverage can lead to greater profit or loss. On top of that, the markets may move against you. And your losses may exceed your deposit due to the rapidity of price movements.

Why trade in Forex Benefits of Forex trading

24-hour market

Forex is an over-the-counter (OTC) market, which means that transactions do not go through a centralized market, such as stocks or indices, for example. Currency trading takes place 24 h, all over the world, from Sunday evening to Friday evening.

Unlike in other financial markets, investors can, in most cases, react to currency fluctuations caused by geopolitical or macroeconomic events without having to wait for the markets to open.

Profit from its high volatility

The currency market is quite volatile throughout the day and night, so whatever your trading strategy, you will be able to identify plenty of potential opportunities.

It also means that the markets are constantly changing. So it's all the more important to monitor your positions and use the appropriate risk management tools.

Like all financial markets, Forex is great for trading as long as traders are ready to lose their money and learn to invest with consistency and intelligence.

Forex offers very profitable options in the short term if you know how to take advantage of market volatility. It requires learning a few basics, being present regularly, and being comfortable with graphical analysis. Every reputable Forex broker takes care of providing top-notch tech analysis tools as well as trading on a demo for those with less experience.

High liquidity

The currency market is the world's most widely traded financial market, with an average daily business volume of approximately $ 5,000 billion. Given a large number of players, this makes it one of the financial markets with the highest liquidity.

Hedge with Forex

Hedging is a risk management technique used to reduce the pitfalls due to unwanted moves in the market. By opening multiple trading positions, you are mitigating loss or limiting it to a specific amount.

Trading positively correlated pairs, and taking positions in opposite directions at the same time, limit your risk.

Moreover, many use Forex to balance their loss in other markets. For example, if you trade commodities such as crude oil, you can use trading the USD/CAD as it has an inverse relationship with crude oil.

In conclusion

There are many advantages to investing in the Forex market. They include the ability to trade on margin, great liquidity, and the flexibility to take positions all the time. Or, if you already have made some investment in crypto or commodities, for instance, it will serve you as an excellent hedging tool.

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