You might be wondering why so many people are interested in trading currencies online. Why Trade Forex? Well, there are 10 proven benefits and in this article, we are going to highlight some of the main reasons people prefer to trade Forex.
There are currently more than 10 million Forex traders worldwide and new accounts are being registered every day by all types of traders – from first-time traders to multi-millionaire institutions and banks.
On a daily basis, approximately $5 trillion is transacted in the Forex markets and millions of people are trading around the clock because the markets are open 24 hours a day.
Wealth is not guaranteed when you trade Forex and not every trade is successful (because learning how to trade on a professional level can take a very long time), but we believe that there are 8 reasons why people choose to trade Forex instead of stocks, commodities, cryptocurrencies and many of the other instruments on offer.
Forex is not only an exciting way for investors, entrepreneurs and enthusiasts to potentially make profits, but it also plays a very important role in economics, importance and exports, banks and financial institutions, and many other types of companies.
What makes currencies stronger?
In a nutshell, the exchange rate of a currency is the value of one currency needed to convert it to another currency – the more you need, the stronger the currency you are converting to.
The strength of a currency can generally be determined by looking at exchange rates and for many years, the US Dollar has remained the strongest world currency, which is why most major currency pairs have the USD.
Exchange rates are impacted by several factors, including interest rates, inflation, economic growth, public debt, trade balances and many more.
The Role of Forex in the Economy
Currencies and banks are closely linked to interest rates, inflation and economic activity.
When economic activity is low, banks will lower interest rates to encourage more consumer spending, which “weakens” currencies – but this could lead to more people buying currencies because the prices are lower.
On the contrary, when economic activity is high, currencies need to be strengthened to keep the economy stable, so banks increased interest rates to discourage consumer spending – giving currencies more value. This is usually when people sell currencies.
Regardless of whether the prices of currencies are high or low, one of the major benefits of Forex trading is that you can buy and sell currencies regardless of economic activity. It really just depends on whether buying or selling is the best move and what you plan to do next!
The Forex markets cannot be owned, but changing interest rates can weaken or strengthen currencies and in a way, it gives countries some level of control over the value of their currencies, which can help to stabilise volatile economies – but don’t forget that a volatile market is filled with opportunities.
Ultimately, the banks participate in Forex markets so that they can control inflation and interest rates.
Forex is most commonly traded by companies that order goods but they do not receive them immediately. In most cases, companies are able to limit their risk exposure to fluctuating currencies by hedging the Forex markets.
What is Forex Hedging?
In Forex, Hedging is a form of short-term protection against volatile markets and sudden movements in prices.
Essentially, hedging is intended to protect profits instead of generating them and it is not a “money-making” strategy.
When you hedge in Forex trading, you will usually open a position with one currency pair and counteract potential adverse movements by opening another position simultaneously.
Many companies will open one long position and one short position, and closing one of them should at some point in the future, minimise the losses incurred (should the other currency move in an undesired direction).
How does Forex impact International Trade?
Forex may not have a significant role in local trade, but when companies trade internationally, they need to pay for goods in the currency of the country they are buying from.
This means that higher exchange rates will make goods more expensive for some companies, while lower exchange rates make goods much cheaper in other countries, which could put some companies at a disadvantage.
But that is not always the case – some companies actually benefit from being able to sell goods for cheap because more people buy their products in bigger quantities – but if exchange rates drop too much, it can put enormous strain on an economy because eventually, the whole economy collapses because no companies are making profits and consumer spending decreases.
Despite the obvious reasons for trading currencies, there are also some benefits to trading Forex in particular that you may not know about.
So what are some of the most common reasons people trade Forex?
Forex is the Largest Financial market
Forex is currently the largest financial market in the world and trillions of dollars are being transacted every day.
It is also the most liquid market that you can trade in and with significant advances in technology and the evolution of online brokers, it’s never been easier to become a trader.
The accessibility of Forex markets makes it incredibly easy for any to participate, which is why there are nearly 10 million traders, and you can start trading with as little as $1.
With approximately $5 trillion being traded daily, we can conclude that around $50 million is being traded every second of the day.
Forex trading can be regulated
As opposed to trading cryptocurrencies on exchanges, Forex can be regulated, which makes it a much safer trading environment.
There are plenty of regulated, trustworthy online brokers that you can trade with and although the Forex market cannot be controlled or owned, its trading activities can be regulated.
Some of the most popular forex regulators include:
- CySEC (Cyprus Securities and Exchange Commission)
- FSC (Financial Services Commission)
- BaFin (Federal Financial Supervisory Authority)
- FSA (Financial Supervisory Authority)
- FCA (Financial Conduct Authority)
- ASIC (Australian Securities and Investments Commission)
- FSCA (Financial Sector Conduct Authority)
- SCB (Securities Commission of The Bahamas
We recommend trading only with a broker that is regulated by at least 2 of the regulatory bodies listed above.
Anyone can open a Forex Trading Account
Forex trading is one of the most accessible financial markets because many brokers offer accounts with low minimum deposit requirements.
Previously, forex trading was only open to banks, companies and high-volume investors with a lot of capital – but now, anyone can open a trading account.
Demo accounts and educational resources
With the above in mind, if you’re trading for the very first time, you’ll find that many brokers also provide educational resources, research data and trading guides that will teach you how to trade.
Forex trading is not easy, but learning how to trade Forex can be easier than most other instruments because many people have developed trading strategies that you can follow.
The best part is that you can also use a copy trading broker or platform for Forex trading, so if you have a busy lifestyle or you’re not ready to trade alone, then this is a great option.
Another benefit of Forex trading is that demo accounts often simulate real-life Forex markets, so you can get a true sense of what the markets are like while you practice.
Forex is traded in high volumes and the markets are liquid
The reason why Forex is being traded in such massive volumes every day is that millions of people are buying and selling currencies and economic news drives price movements, which can make Forex markets extremely volatile.
When markets are volatile, it means that more people are trading and depending on whether your broker offers fixed spreads or variable spreads, you may find that spreads can be extremely tight under certain market conditions.
Forex pairs usually offer the tightest spreads of all the instruments you can trade and can start as low as 0 pips.
Many brokers also offer commission-free accounts and active trader programs, which encourages people to trade in higher volumes.
When people trade in higher volumes, the markets become more liquid and Forex markets are the most popular and most liquid financial markets out there.
Forex markets cannot be owned or controlled
Another advantage of trading Forex is that the Forex market itself can never be owned by anyone.
Brokers can be used to connect millions of traders from all around the world to the markets, but no one actually owns the market so it cannot be controlled.
The fact that it cannot be controlled or owned allows the traders themselves to drive price movements collectively.
Forex can be Traded when Markets are Rising or Falling
Whether the prices are rising or falling, there is always an opportunity to make a profit in Forex trading.
The direction you choose to trade in will depend on the strategy you are using and the news you are following, but you will never be restricted to trade in any specific direction.
Buying and selling Forex pairs is an incredibly easy and quick process and whether you buy long or short, you can sell instantly.
The Forex markets are always moving and there are plenty of charting and drawing tools you can use to plan your next move.
Forex Markets are always open
Forex markets run in cycles and there will always be a session running during every time zone.
When a million traders are fast asleep on one side of the world, 2 million traders are trading on the other side of the world.
The markets are in fact always open and always operational, but as a general rule of thumb, people hardly ever trade over weekends.
This is not because it is not allowed, but the markets simply are not very busy over weekends and the inactivity could lead to high spreads and less price movements.
Most retail brokers are only open from Monday to Friday and it’s recommended that positions should not be held overnight because it costs more and sudden price movements could result in losses.
To find the best times to trade, you should follow the global forex trading sessions and plan your trading week ahead.
To learn more about Forex trading sessions, read this article.
Forex can be traded commission-free with some brokers
There are many safe and regulated brokers that offer commission-free trading.
Charging commission fees is one way that most brokers make profits, but some brokers will offers fixed spreads with no commissions, or variable spreads with low commissions – or both.
This is why we recommend choosing a broker that offers flexible accounts. Most brokers will offer a standard, commission-free account.
Commission-free trading is one of the major advantages of forex trading and makes it a beginner-friendly, low-risk instrument.
There are many regulated and trusted Forex brokers
One of the major reasons why Forex trading is so popular and so lucrative is because it’s safe.
Most regulated brokers will offer a variety of tradable forex pairs and will generally have tight spreads.
Finding a trusted broker to trade Forex with is incredibly easy and many of those brokers offer some form of investor protection, either through compensation funds, segregated accounts, negative balance protection and other risk management features.
Unfortunately, as is the case with crypto trading, many exchanges cannot be regulated due to a lack of regulations around cryptocurrencies, which exposes many investors to potential scams and losses.
Transaction costs on Forex are low
Forex trading is one of the most affordable instruments you can trade because you generally have the option of commission-free trading and the spreads are significantly lower than most other instruments.
Many brokers also offer free deposits and withdrawals and the only costs you may need to worry about are overnight fees (rollover fees) and paying the initial minimum deposit.
Another perk of trading with a Forex broker is that many brokers also offer a welcome bonus or a deposit bonus, so you can save a lot on trading costs this way.
What makes Forex trading even more attractive is that you will also find some brokers that offer trading bonuses, which means that you can get more out of your deposits.
Leverage on Forex is usually more flexible
Forex trading is also so popular because it is one of the safest instruments to leverage.
When you leverage your trades, you can gain a lot more exposure to the markets, which creates room for greater opportunities.
Forex markets can be extremely volatile, so if you do decide to leverage your trades – just be careful!
When Forex trading first started in 1973, it was only available to banks, but technology has allowed ordinary people and all kinds of investors to participate in the Forex markets.
There are many reasons why Forex trading is actually very important.
If millions of people were not trading Forex every day, the banks would have full control over exchange rates, inflation rates and currency strength and isolating power over currencies that way could have a negative impact on the world.
By opening Forex trading to the public, people, companies and investors can now play a role in pushing market movements in a certain direction.
While many other instruments can be restrictive, expensive or extremely unpredictable, currency pairs can be a safe haven.
This is because you have the option of trading majors, minors or exotic pairs – each one being more volatile.
So depending on your risk appetite and tolerance, there’s a currency for you.
So, Why Trade Forex? Simply because there are so many benefits to trading currency pairs and significantly lower risks with plenty of resources online to help you improve.
From being a regulated and transparent financial industry, to being one of the most affordable and profitable instruments, we highly recommend adding some Forex pairs to your portfolio.
Whether you’re trading for the very first time or you’ve been trading for many years, you’ll find some of the best spreads and lowest costs with Forex and it’s easy to learn how.
We hope that this article has given you a reason to start trading today!