10 Benefits of Forex Trading that you should know

Are you unsure about investing your money in the foreign exchange market. Let us discuss the amazing features and benefits of forex trading to help you decide.

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Trading in currencies is becoming increasingly popular among people. However, many newcomers or novice traders have doubts and hesitation to invest their hard-earned money in the market. In this article, we will discuss the benefits of forex trading to help you determine whether this will be a suitable investment option for you. Let us first discuss a brief introduction to forex trading.

What is forex trading?

Forex trading is a way of buying and selling currencies of different countries to take advantage of their value fluctuation due to social, economic, technological and other factors.

Similar to gold trading, where people buy gold predicting its price will rise in the future, in forex trading also, traders buy and sell currencies predicting that a particular currency will rise or fall against another. So, they will make money through the difference.

Let us understand with an example, suppose a protest is going on in Britain against the government. You think that it will have a negative impact on GBP and the value of USD will rise against Great Britain Pounds.

So you decided to buy USD/GBP at the current exchange rate of 0.78, which means 1 USD equals 0.78 GBP. Suppose your prediction went right, and the USD/GBP reached 0.88. In this case, you have made a profit of 0.10 GBP per USD.

Benefits of Forex Trading

10 Key Benefits of Forex Trading

Forex trading is a way of buying and selling currencies of different countries to take advantage of their value fluctuation due to social, economic, technological and other factors.

Similar to gold trading, where people buy gold predicting its price will rise in the future, in forex trading also, traders buy and sell currencies predicting that a particular currency will rise or fall against another. So, they will make money through the difference.

Let us understand with an example, suppose a protest is going on in Britain against the government. You think that it will have a negative impact on GBP and the value of USD will rise against Great Britain Pounds.

So you decided to buy USD/GBP at the current exchange rate of 0.78, which means 1 USD equals 0.78 GBP. Suppose your prediction went right, and the USD/GBP reached 0.88. In this case, you have made a profit of 0.10 GBP per USD.

Trade anytime from anywhere

One of the main advantages of forex trading is you can buy and sell currencies around the clock. Unlike the stock market, FX markets open for 24 hours and 5 days. It has four sessions: London, Tokyo, Sydney and New York.

Each session is open and closes for different periods. However, at least one session remains open at any point in the day. So you can trade forex in any session based on your convenience without considering your location. This feature makes it suitable for traders with jobs and businesses to make passive income.

Diverse range of assets

Foreign exchange market offers a wide range of currency pairs to trade in. There are hundreds of legal currencies, which make a large number of pair to trade.

There are three types of pair: Majors, Minors, and Exotics. Major are the combinations of USD and the other six strongest currencies. Minors include all major currencies except USD, and exotics include one major currency and one of developing nations.

Forex trading for beginners can be a complex process. So they should start trading with major currencies like USD, EUR, GBP, JBP, CAD, AUD, NZD, and CHF. As these currencies offer stable market conditions eliminating the chances of losses.

Also, you can diversify your investment in different currency pairs to manage the losses. So in case you have incurred a loss from one trade, you can manage it from the profit of other trades.

Use different trading strategies

There are many ways to start your trading career. You can use any trading style based on the time frame, duration, capital, risk, currency pair, experience, etc.

Scalping, Day trading, Swing trading, position trading, price action, news trading, trend and range trading are popular strategies for different traders.

Swing and position trading are long-term strategies for passive traders, while scalping and day trading are quite risky processes with good profits suitable for experienced traders. Price action is best for beginners and news trading for traders with fundamental analysis.

Try & test

Another benefit of forex trading is you can try and test the method to find out whether it can be a good fit for you. Many forex broker platforms offer a demo account facility to help traders practically experience trading with fake money.

If you are interested in currency trading, learn how the market works and open a demo account. You can start placing trades with fake money, and if you are making a significant profit, you can place real trades with small capital.

Profit from both positions

You can make a profit in the forex market by going long (Buy) as well as short (Sell). When the price of a currency is expected to rise, you can buy, and when the price is expected to fall, you can sell the pair to earn a profit.

Also, opening and closing positions is easier and hassle-free in forex compared to the stock market.

Large trade with small funds

You can take advantage of the leverage facility in currency trading. Leverage is a way to open a large position with a small amount.

Suppose a trader has an account balance of 200 USD and a leverage facility of 100:1. It means he can place a trade worth 20,000 with 200 USD.

So, advanced traders with small investment amounts can place big trades and make huge profits. However, high leverage comes with a significant amount of risk. One should use leverage considering risk management to eliminate the chances of huge losses.

Higher Liquidity & Volatility

The reason why forex trade is popular amongst traders is the market offers high liquidity and Volatility as compared to any other financial market. In currency trading, assets can be bought and sold without affecting their value.

According to information, over 6 trillion transactions occur daily in the market. A large number of traders place billions of money every minute. Forex traders generally trade during highly volatile and liquid markets to increase profitability.

Decentralized Market

One of the key benefits of forex trading is its decentralized nature. FX market is an over-the-counter market, meaning all transactions occur digitally.

Major central and commercial banks, multinational companies, institutions, and hedgers participate in Foreign exchange. However, no organization or authority regulates or controls the activities of the forex market.

So a single entity or a particular institution does not manipulate the activities of the market. In addition to this, there is no middleman in the market that makes trading currencies desirable.

Low capital and cost small trade size:

Compared to stock trading, the capital requirement of currency trading is low in forex. You can start trading with 100 Dollars and make small money from small trades.

The fees for trading in currencies are also very low and competitive. Forex brokers charge fees in the form of spreads or commissions. Many reputable brokers charge competitive fees. Also, some broker does not even charges withdrawal and inactivity fees.

So, trading in forex is cost-effective if you are with a good broker. You can easily adjust the trading fees from your profits.

Automation

Traders can make significant money in the market by combining technology with their knowledge. Many automated software and bots open and close a trade on your behalf based on predefined conditions.

So in case you have stuck in a meeting, you will not lose a good opportunity as these bots will already place a trade. You can use these software to limit losses and maintain the risk-to-reward ratio.

In addition, automated trading software studies a large number of historical data to provide effective trade signals by conducting technical analysis. So you can also place trade decisions using these software.

Wrapping Up

We have discussed the amazing benefits of forex trading. However, forex trading also has some limitations. No doubt, currency trading is an excellent way to make money; however, risk is also associated with the market.

Trading in currencies requires risk, money and emotional management skills, analytical skills, market knowledge, an effective trading plan, the right trading psychology, and many others.

It is the biggest myth if you think you can make money in the market without proper education. There is a difference between trading and gambling.

You can stay profitable in the market with proper knowledge, discipline and patience. Even when the market moves against your prediction, you can turn losses into profits with these skills.

So, keep yourself updated, never stop learning, always make logical decisions, and take a step towards a successful trading journey.