BENEFITS
OF FOREX
Below
are the benefits of trading the Forex markets:
Minimum
Brokerage Commissions
Transacting in the FOREX market does not require much brokerage
commission expense. As any experienced trader knows, equity transactions
and futures transactions both require brokerage commission that,
in some cases, constitute a significant expense. Minimum brokerage
commission is an immediate cost saving to the FOREX trader.
Minimum
Starting Balances
The minimum starting balance for accounts is $300 thus placing
FOREX trading within reach of those individuals who have only
a modest amount of risk capital. Furthermore, an operational FOREX
policy automatically closes all open positions the moment margin
in an account drops below the required level. This helps to ensure
that the trader never loses more money than that originally deposited.
Streaming
Real-Time Quotes
In the FOREX market, traders execute directly off streaming real-time
bid and offer quotes. The bid or ask on sees quoted is typically
the price at which one is able to deal. Whilst there may arise
discrepancies between the two, it should be noted that in most
markets, a trader may face uncertainty with regard to price fills
for an order, especially when transactions are executed on an
exchange floor to which the trader does not have direct access
to.
Open
24 hours a Day
The FOREX market operates continuously from its open at 2pm Sunday
afternoon New York time with the Sydney-Auckland market until
its close at 5pm Friday in New York. FOREX trading follows the
day around the world: from Sydney to Tokyo to London to New York.
The seamless 24-hour nature of the FOREX market enables the trader
to react to news as it occurs - regardless of the time. It gives
the trader the flexibility to set their own hours of the trading
day.
Real
Time Reporting
In the Forex market, traders can see the value of their positions
and account equity move up and down with the market in real time.
This key information for every account is re-calculated and updated
every time the exchange rates change. Traders have immediate access
to detailed information regarding every open position, open order,
and the generated profit/loss per trade.
High
Leverage
Margin nodoubt, is required to trade FOREX but margin is not a
down payment on purchase of equity, as in the stock market, but
rather it serves as a performance bond or good faith deposit,
as in the futures market. Margin is required to ensure ones ability
to handle the financial risk of the trade. With FOREX, the required
margin is only a very small percentage of the market value of
the position being traded. For example, margin of the mini contracts
typically is under $200. (Margins vary.) This is referred to as
leverage. In other words, by using leverage, a trader can hold
a position much larger than the account value. High leverage means
that a change in FOREX prices will have a much larger impact on
the dollar value of the account and this can work both in favor
of the trader and against the trader.
Real-Time
Charts and News
The availability of real-time charts and news - along with streaming
real-time quotes - enables the FOREX trader to react immediately
to developments as they unfold. There is no need to wait until
the market opens before taking appropriate action.
Flexible
Contract Sizes
FOREX traders can choose among two types of accounts:
Standard
In this account, the size of a trade can be 100,000 units of foreign
currency. The latter is referred to as a "standard"
contract and is similar in size to a typical futures contact.
Mini
In this account, the size of a trade is 1/10 the standard contract,
or 10,000 units of foreign currency. This is referred to as a
"mini" contract. Profit and loss is one-tenth the amount
of the corresponding standard contract.
There
is no difference in price or liquidity between the different unit
sizes. The only difference is that the smaller unit sizes have
smaller risk and therefore, smaller margin requirements. The trader
has the flexibility in selecting a contract size that is appropriate
to their amount of trading capital and tolerance for risk.
Automatic
Closure
An important element of risk management when FOREX trading is
the automatic closure of all customer positions in the event that
funds in the account fall below margin requirements. This prevents
a trader's account from falling into a negative balance.
