Trading Forex- Second Part About Why Trade Forex?

In the previous article we covered some of general attributes of trading Forex. Those included liquidity, long term trends, availability of information or fundamental news, 24 H access and Forex as a tool for diversification. Here we are going to look at some very trading specific aspects advantages of getting involved in this market.

Demo accounts- all of forex brokers offer demo accounts. These are virtual accounts, with no real money, which simulate live trading. On most platforms these accounts track live prices tick by tick. You can practice trading, test your strategies and hone your skills without risking real money. Except for emotional impact, trading in these accounts is exactly like live trading. Fantastic tool, not just for beginners, but also for seasoned traders. Outside of Forex, very few brokers offer something like that.

Technical tools- all currencies trading platforms contain a wide range of technical analytical tools. Vast majority of these services are free with an account. Some will be more complex, some less, but in most cases there is more than an average trader will ever use. These tools are getting increasingly more complex. It's not unusual for a trader to have the possibility to write very complex automated trading strategies right into their trading platform. Generally speaking there is no need to have any paid for, stand alone software package. Brokers' free offerings are more than adequate.

Leverage- Forex trading accounts are margined. Trader can use leverage to increase his buying power. While most other financial instruments can be bought and sold using leverage, nothing comes close to currencies markets. Industry standard is leverage availability of 100:1, but even 400:1 can be found. While it's not advisable to use extreme leverage, it's good to have the choice. This way account size can be fine tuned with position size. Once a trader is comfortable in his/her trading, there is nothing wrong with using reasonable leverage.

No slippage- this is something unique to Forex markets. Some brokers go as far as to GUARANTEE no slippage on all limit and stop orders. This means that you always know precisely your risks and potential gain. No slippage guarantees are simply unavailable, and even illegal in other markets. From practical standpoint, during fast moving markets one might experience an occasional slippage on market orders. Comparing to futures or even stocks, active trader will experience far less, if any slipped trades.

No additional liability- an average retail trader has no financial liabilities, outside of the money already on deposit. What does it mean? For example, in futures markets, events like “limit days” will halt trading, making it impossible to get out of loosing position. That can lead to losses far in excess of money on deposit. Trader can not only loss all the money in the account, but even be liable for more. In Forex markets brokers take this unlikely risk, in affect indemnifying retail traders from additional losses. Most people don't even know about it, but look on your brokers website carefully.

Large daily moves- currencies can, and often do, move a lot on intraday bases. That, of course changes and is not constant, but as of this writing JPY crosses have wild daily swings. Over last couple of weeks, for example, average daily range in EUR-JPY has been more 200 pips. Current JPY pip value is about $8.50 trading standard 100K lot. This translates to daily moves approaching $2000 in value. GBP-JPY moves even more.
There is plenty of good daily opportunities if short term trading is your thing.

This is not a complete list, as every participant in Forex markets has his/her own reasons for trading here. Depending on what person looks for in trading instruments, currencies offer some advantages over more traditional financial vehicles, as well as a few unique opportunities. While there is always a possibility of loss, no wonder more and more traders gravitate towards this fascinating frontier.