Even though some of the reasons for trading Forex are evident from now on, let's start from the beginning.
Why operate in the financial markets?
"A basic freedom that we have in living in a capitalist country is that we are free to speculate on price movements, this freedom does not require any additional justification, such as promoting commercial interests." All that is needed is that the general public is not affected and the market is organized according to fair rules and procedures. "
-The Rosenthal Report, circa 1976.
Advantages of operating in Forex compared to other markets
Forex does not rest
New York, Tokyo and London ... Why Forex never sleeps?
Since governments, companies and people who need currency exchange services are scattered around the world, trading in the Forex market never stops. The activity in the Forex market basically follows the sun around the world. At any time of day or night you can find an active currency pair to operate.
The Forex market is open 24 hours, 5 and a half days a week. It is not possible to operate on weekends.
Why would someone operate Forex instead of other markets? This is because people with full-time jobs can only trade Forex before or after work and on Sunday evenings.
Long or short
Why is the Forex good for you? Because it works both ways.
In the time of investors like Mr. Dow, it was only possible to operate profitably in one direction: buying. Investors only acquired assets that in their opinion, would maintain or increase their value. Therefore, companies whose shares rose in price, apparently were better options from the point of view of business.
There was no way to generate returns through the sale of assets that were depreciating. The only thing that could be aspired to when selling shares that were losing their value was to stop the losses.
A century later, operators call the Forex market "the best in the world".
Now people can earn money when the market rises, falls or is in range. Regardless of whether there is a financial crisis, a weather emergency or the fall of a meteorite, Forex traders do not care.
Low transaction costs
It is worth mentioning some things related to the issue of low transaction costs.
First of all, most Forex accounts operate without commissions or with a minimum rate, and there are no exchange fees or data licenses. In the event that there are tariffs, it would be an added cost of the market maker. When there are no such rates, the cost of the transaction will be the difference between the purchase and sale prices (spread), which is always a function of market activity. Therefore, if you think that the USD / JPY spread is too high for you, try another market, such as corn.
Second, a low initial investment.
Do you want an account without needing a deposit? Surf the Internet for half an hour and you will surely find a place to open one. The barriers to entry are lower in Forex than in any other traditional financial market, which is one of the main reasons behind its accelerated and expansive growth. To have a reference, the SEC (Securities and Exchange Commission) requires a minimum balance of $ 25,000 in the trading account to operate in the stock market. Similarly, futures brokers ask customers to publish their margins and maintain a minimum balance in the account of a few thousand dollars to access and put operations in the market.
Finally, the trading program, the analysis tools and the price quotes are free for Forex traders, which does not happen in the same way for stock or futures traders.
Your Forex broker already paid for all these elements, which is another way to tell you: operate as much as you want.
Leverage is another reason to trade Forex.
Some currency traders realize the miracle of financial leverage simply because they have never operated in another market. For example, if they operated with stocks, the maximum leverage that the broker would offer them would be 1: 2, while the maximum leverage of some Forex brokers is 1: 1000! Why is Forex trading so popular? Take a minute to focus on this reason.
Of course, such high leverage is another way to attract traders who can not make a $ 25,000 investment. This is possible only thanks to the great liquidity of this market.
High leverage allows traders with insignificant investments to trade with high volumes of currency and generate significant returns from the smallest market movements. However, there is also the possibility of incurring significant losses. It is important to understand that in itself, high leverage does not make trading more risky, but the large volume that can be operated thanks to it.
In the hands of a careful and knowledgeable operator, it is possible to operate safely in any account, even with high leverage.
Speaking of liquidity
The international exposure is the main reason for the famous Forex liquidity. As the world becomes increasingly globalized, investors look for opportunities anywhere. If you want to form a general opinion and invest in another country, Forex is a simple way to gain exposure, while avoiding problems such as foreign laws on securities and financial statements in other languages.
To free yourself from exorbitant figures that do not mean anything when taken out of context, we will only say that in the Forex market more is negotiated in a single day than in Japan in a whole year. Japan is the third largest economy in the world, of course. There is always a large number of people operating, although the majority of negotiations are concentrated in a few currencies (around 80% of all Forex transactions involve the US dollar). This makes it generally very easy to enter and exit transactions at any time, even at high volumes. Therefore, if you think the spread is too high or your operations take too long to execute, try another market, such as corn.
There is an important observation regarding why Forex trading is complicated and that it involves liquidity.
You may hear that many people talk about liquidity, the interbank market and the size of the Forex market as a non-negotiable advantage. However, these factors are relevant only from the institutional point of view of the industry, but they are not very important for the retail operator. It is important to remember that this class of operators works through Forex brokers. If the broker in question is a market maker, we only negotiate with him and your operations never reached the true interbank market.
Accessibility
It is possible to trade Forex from anywhere in the world as long as there is an Internet connection. You do not even need a broadband connection.
In addition, it is possible to open accounts after completing a simple form and passing a rudimentary identity check. Funds can be deposited on the same day the account is opened and operations can be carried out immediately afterwards. Actually, anyone with the desire to trade can enter the Forex market in less than 60 minutes after reading this phrase to the end.
Disadvantages of the Forex market
The disadvantages of operating in Forex are not so numerous, but it is important to take them into account, because they can outweigh the advantages if they are not paid attention.
An unpleasant detail
The biggest disadvantage of the Forex market is that all its benefits can easily be denied to an ignorant and inexperienced operator who enters the market without any discernment.
The Forex market is probably the least refined environment from the point of view of the operator, since it is very simple, cheap and promising. The bad reputation of the forex market precedes it and one of the first things that beginners wonder is if Forex is a scam and if it is actually possible to earn some money. The answer is that it is possible! How much of possible? It depends completely on the person and no one else!
Before you decide to trade in the forex market, you should carefully consider your investment goals, level of experience and risk appetite. Educate yourself, train yourself, invest your time and money, treat the Forex with seriousness and care, and the market will reward you in the end.
In summary, why would anyone operate Forex? Because financial trading is definitely something worth trying and what is worth to succeed. The Forex market is the easiest to take advantage of, but it is not the only one. If the Forex market does not attract your attention, do not despair and try the corn market.
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