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Forex for Beginners

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Forex for Beginners: How to Make Money in Forex Trading

Table of Cotents

Chapter 5: Advantages of Forex Over Other Investment Assets

1. Simple to comprehend and master - In a Forex trade we deal with just a pair of currencies.

2. Low Minimum Investment - The Forex market requires less capital to start trading than most other markets. The initial investment could go very low, depending on the leverage offered by the broker. This is a great advantage since Forex traders are able to keep their risk investment to the lowest level. Online Forex brokers offer "mini" and "micro" trading accounts with low minimum account deposit.

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.

3. 24 Hour Market - Since the Forex market is worldwide, trading is continuous as long as there is a market open somewhere in the world. Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday.

4. High Liquidity - Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In Forex this means we can move large amounts of money into and out of foreign currency with minimal price movement.

5. Low Transaction Cost - In Forex, typically the cost of a transaction is built into the price. It is called the spread. The spread is the difference between the buying and selling price.

6. Leverage - Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account. If you were to trade at 50:1 leverage, you could trade $50 on the market for every $1 that was in your account. This means you could control a trade of $50,000 using only $1000 of capital.

7. Profit Potential from Rising and Falling Prices - The Forex market has no restrictions for directional trading. This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.

8. No one can corner the market - The foreign exchange market is so huge and has so many participants that no single entity can control the market price for an extended period of time.

9. Forex is the largest financial market in the world - The Forex market has a daily volume of over $ 4 trillion. Such a huge amount of a daily volume allows for an excellent price stability in most market conditions. This means you likely will never have to worry about slippage as you would when trading stocks or commodities. The price you see quoted on your trading screen is the price you get.

10. Market transparency and Instant execution - Market transparency is much greater in Forex than in stocks or commodities, this means it is easier to analyze the inner workings of the market and figure out what is driving it. For example, economic reports and news announcements that drive a country’s economic policy are widely available and accessible for anyone interested. Whereas an individual company’s accounting statements are much harder if not impossible to obtain.

Instantaneous order execution is another great advantage Forex has over other markets. Retail Forex trading is generally done over the internet on all electronic platforms. The Forex market has no central exchange and was designed to be this way to facilitate large banks and allow for instant execution of transactions, this means no delays for you and extreme ease of execution.

11. Price movements are highly predictable in the Forex market - Due to its highly speculative nature Forex price movements tend to over shoot and then correct back to the mean. This means there are a number of repetitive patterns that are easily recognizable to the trader who is trained in price action analysis. Forex currency pairs generally spend more time in very strong up or down trends than other markets, this is also a huge advantage because it is generally much easier to trade a strongly trending market than a chaotic and consolidating market.

12. No constraints on the number or type of transactions - The futures market sometimes will have what is called a “limit up” or a “limit down” day, this means when the price moves beyond a pre-determined daily level traders are restricted from entering new positions and are only allowed to exit existing positions if they desire to do so. This is meant to control volatility, but because the futures market for currencies follows the spot Forex market the next day at the futures open their sometimes will be large “gaps” or areas where the price has adjusted over night to match the current spot Forex price.

Now, if you were holding a futures position over night it is entirely possible that your stop got gapped around, in which case you would get filled at the next best price, which often will be extremely damaging to your trading account. Due to the 24 hour nature of the spot Forex market even in extreme market volatility traders generally don’t have to worry about gaps and can almost always get out at the exact price they want.

13. Direct participation, difficult to manipulate or influence - Forex trading operates in a decentralized online electronic market for its participants: Banks, FCMs, hedge funds, governments, retail currency conversion houses and high worth net individuals. There is no middleman between the trader and buyer/seller. Investors can interact directly with the market maker for pricing on a currency pair. Access is quicker and costs are lower than in other markets. Large market liquidity makes it very difficult for any one participant to manipulate or influence it.

14. Easier market analysis - Countries are more often stable than companies making it easier to predict their economic direction. Primary factors affecting demand and supply for Forex investment are interest rates and economic indicators such as GDP, trade balances and foreign investment. This and other economic data released regularly determines demand and supply for currency pairs.

15. Technology frontiers and investing - Technology enables the retail investor the ability to make better investment decisions through ready access to economic and political news events, to technical charting software and electronic trading platforms. They also have transparent and safe access to their investment funds in segregated accounts so that the safety of their funds is guaranteed.

16.  Limited Risk - Despite the common perception about Forex being risky, it is easy to limit and reduce the risk if a trader chooses the right strategy. In addition it should be mentioned that stops are much easier to control as well, that is why newbies have  good chances to succeed even while doing their first steps as Forex investors and traders.

17. No fees or middlemen - There are no commissions when trading on the Forex market. The retail brokers in this market are compensated through the bid-ask spread. Businessmen can also spot currency trading which eliminates the middlemen and allows each person to trade directly with the market that is responsible for pricing on a certain currency pair. Not only does this expedite the process, it gives each trader more options and versatility.

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