Historically, the FX market was available most to major banks, multinational corporations and other participants who exchanged high transaction sizes and volumes. The small business people like you and me, have little access to this market for a long period. Now with the advent of Internet and technology exchange is a popular investment alternative for the general public.
The advantages of trading in the money market:
It is open 24 hours and only closes on weekends;
It is very liquid and efficient;
It is very volatile;
It has very low transaction costs;
You can use a high level of leverage (borrowed money) with ease, and
You can benefit from a bull or a bear market.
Continuous 24-hour trading
The exchange is a market of 24 hours. You can choose to trade after arriving home from work. No matter what time you want to exchange at any time of day, there would be enough buyers and sellers to take the other side of your business. This feature of the market gives you the flexibility to manage their operations around their daily routine.
Liquidity and efficiency
When there are many buyers and many sellers, you can expect to buy or sell at a price that is very close to market prices for the end. The forex market is the most liquid market in the world. Trading volume on the exchange markets can be between 50 and 100 times larger than the New York Stock Exchange (Source:. OANDA)
When you are trading stocks, it is possible that events experienced in a story that accelerates or slows down the price of the underlying stock that you purchased. Perhaps a director has been dismissed by the shareholders of a corporation or partnership has launched a new product and big investors buy shares of a particular company. Stock prices can be significantly affected by the actions or omissions of one or a few individuals. So if you trust the reports of the television and the press for his new, most of the opportunities or warnings came too late for you to take advantage when you buy.
The value of other currencies is affected by many factors and so many participants that the likelihood of an individual or group of individuals drastically affecting the value of a currency is minute. Due to its size, the foreign exchange market is difficult to manage. The ability of people to engage in "insider" is virtually eliminated. As a average, less poor. Is likely to play in relative equality with all other traders and investors who are competing.
Note about price differences:
For those already listed elsewhere, you probably know the price "gaps". "Gaps" occur when "jumping" the price of one price level to another without taking any further action to get there. For example, you can be part of operations of $ 10 closes at the end of today, but due to an event that occurs at night opens tomorrow at $ 5 and continues to move toward the rest of the day.
Lagunas bring another degree of uncertainty that can interfere with the operator's strategy. Probably one of the most disturbing aspects of this is when a trader uses stop-loss. In this case, if a trader places a stop loss at $ 7 because he no longer wants to be in a trade if the share price hits $ 7, trading will remain open overnight and the trader wakes up tomorrow with greater loss of what may have been prepared.
After seeing a couple of forex charts, you will notice that there are "gaps" in the price of little or nothing at all, especially in long term charts longer as 3 hours, 4 hours or daily charts.
Volatility
Business opportunities exist when prices fluctuate. If you buy a share of U.S. $ 2 and stays there, no chance of making a profit. The magnitude of this fluctuation level and frequency is called volatility. As a trader, is the volatility that you like. Trading volume and liquidity combined with fewer trading instruments generate greater intra-day volatility in the currency market that can be exploited by day traders. The high volatility of the exchange market indicates that the trader can potentially earn money five times more currency to trade the most liquid shares.
Volatility is a measure of the maximum yield that can generate a businessman with perfect foresight. The volatility of most liquid stocks are between 60 and 100. Volatility for currency trading is 500. (Source:. OANDA)
In this sense, the currencies are trading a car for a better day, as traders in the securities markets.
Low transaction costs
A currency transaction typically incurs no commission or transaction fees. For a trader, the spread is the only cost you need to cover by taking a position. In addition, because the efficiency of currency markets, there is little or no 'diversion' costs.
"Slip" is the cost involved when traders in the market at a price worse than the level I wanted. For example, a trader wants to buy a stock at $ 2.00, but by the time the order is executed, come to buy the stock at $ 2.50. This difference is the cost of fifty cents slippage. Change affects the cost of high-volume traders a lot. When they buy large quantities of goods, saturate the market with orders. This applies pressure for prices to rise. At the time they get to buy all the quantities they wanted, the average price obtained their products would be higher than the price they sought to form. Conversely, when selling large quantities of a product oversupply in the market with sell orders. This applies pressure to lower prices. At the time you end the sale of all its products, its average selling price is less than originally planned to sell.
Due to lower transaction costs, minimum slippage and strong intra-day volatility, individuals can trade frequently at low cost. As an approximation, can be expected to have a difference of 0.03% of the size of their position. To give an example, you can buy and sell U.S. $ 10,000 and this incurs a margin of 3 points, equivalent to $ 3.
Leverage
There are not many banks or lend money to people who can use it for commercial activities. And if there would be very difficult for you to convince them to invest in yourself and your idea that some will go up or down. Therefore, most of the time, if you have a $ 10,000, you can not really afford to buy $ 10,000 worth of reserves.
In currency trading, however, because it is using borrowed money, you can exchange $ 10 000 for a coin and you only need anywhere between fifty (For a margin lending ratio of 200: 1) to $ 200 (a margin lending ratio of 50: 1) in its trading account. This allows an average trader with an account of small operations of less than $ 10,000 to benefit sufficiently from the movements in exchange rates. This concept is explained later in the part-time trader.
Enjoy a bullish or bearish market
When you are trading stocks, you can profit when the stock price increases. When you think you are about to fall or just move sideways, then all you can do is sell your stocks and keep them away. One of the frustrations of dealing in stocks is that the individual can not profit when prices fall. In the currency market, it is easy for you to negotiate the reduction of the coin so you can enjoy when you think it will lose its value. It is easy to do because currency trading simply involves buying one currency and selling another, there is no structural bias that makes it hard to trade 'down'. Therefore, the foreign exchange market is sometimes suggested that the eternal bull market.
