Why (and How!) To Trade The Foreign Exchange

Here are just a few reasons why, so many are choosing Forex:

Forex is A 24-hour market. There is no waiting for the starting bell - from Sunday nightfall to Friday daylight EST, the Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can elect when you want to trade–morning, noon or night.

No Fees. No clearing fees, no exchange fees, no government fees, no account management fees, no withdrawal fees. Forex brokers are paid for their services through something called the bid-ask spread, essentially a commission. This commission is several times less than stock exchange market fees and commissions (read below)!

No fixed lot sizes. In the futures markets, for instance the contracts are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size.

This allows people to enter this market with deposits as small as $250.

Low transaction costs. The retail transaction cost (the bid/ask spread) is typically less than 0.1% in normal market conditions. At superior dealers, the spread could be as low as .07% (percent). This depends on your account settings and all will be explained later.

No market manipulation. No one can corner the market. The global foreign exchange market (Forex) is so enormous and has so many participants that no specific entity (not even a central bank) can gain complete control over any currency pair.

Leverage. In Forex trading, a small margin deposit can command a much bigger currency contract. Leverage gives the seller the ability to make those high profits, and at the same time keep imperil investment to the minimum. For example, Forex brokers recommend 200 to 1 weight, which means that a $50 cash margin deposit would allow a trader to buy or sell a $10,000 worth of currency. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. However, leverage is a double-edged sword. Without proper risk management, this high gradation of leverage can lead not only to large gains but large losses as well.

High Liquidity. Because the Forex Market is so enormous, it is also awfully liquid. This means that under normal market conditions, with a click of a mouse you can immediately buy and sell at will. You are never stuck in a trade.

Free Demo Accounts. Most online Forex brokers offer demo accounts for beginner traders to practice trading, along with streaming Forex news and charting and trading software. All free! These are very valuable resources for SMART traders who would like to hone their trading skills with free ‘play’ funds before opening a real trading account and starting trading with real money.

Free Trading Software. As mentioned earlier all brokers provide you with trading and charting software, usually free of charge. The software allows you to open and close positions in real time, with a click of a mouse! You can even set your online trading platform automatically to close your position at your prefered Take Profit level and/or close your trade if it is going against you (a stop loss order).

Mini and Micro Trading. You would think that starting out as a currency trader would require a lot of investment. The reality is, compared to trading stocks, options or futures, it does not. Online Forex offer “mini” and “micro” trading accounts, some with a minimum account deposit of $300 or less. This is not to say that you should open an account with the bare minimum but it does make Forex much more affordable to the individual traders who does not have a lot of initial investment.

Despite all these advantages trading the Forex is not an easy task and should never be approached light-mindedly especially by new forex traders. The promise of great returns can quickly turn into a reality of frustration and losses if you enter this market unprepared.

In our next article we will show you the best way to prepare yourself and will also look at two of the best forex trading tools available on the market: the Forex Killer Software and the Forex-Tracer. Automated trading software becomes more and more popular, with certain analysts predicting over 50% of all trades to be executed by trading robots by 2010 and anyone intending to make money in Forex should seriously consider using these tools, which are becoming more and more intelligent, and at the same time, also, more and more affordable. Just a few years ago an automated trading system like the Forex-Killer or Forex-Tracer could cost in the order of several thousand dollars! Compare this with under $100 for either system today and not enlisting the “services” of a computer trading software becomes almost a crime against sanity.