Why Trade Forex?
Long trading hours, deep liquidity and high leverage are just one of the few reasons why Forex is a popular choice for retail investors.
Foreign exchange trading involves the buying and selling of currencies. Foreign exchange markets are the largest and least regulated financial markets in the world. Every day, turnover in global FX markets reaches close to $4 trillion. For comparison, daily turnover on the NYSE fluctuates around $60 billion. Deep market liquidity makes it easy to get in and out of trades.
Long trading hours
The sun never sets on world Forex markets: you can trade Forex 24 hours / day, 5 days / week. As the trading day comes to an end in one financial centre, the trading day opens in another. See our guide to Forex market hours for trading hours in the largest financial centres.
Leverage is the amount of money you are allowed to borrow from your broker when you open a position. If your broker allows 1:1000 leverage, you could open a $100,000 position with a low $100 initial deposit. If the currency pair you bought subsequently rose by 20 pips (which amounts to 0.20%), you would be $200 better off and enjoy a 200% return on your investment. Note that leverage magnifies your gains as well as your losses.
Forex trading commissions are nil. The only price you pay on day-trades is the currency spread: the difference between the price at which you buy and sell currency. Spreads can be as low as 1 pip for major currency pairs.
If you keep your position open over-night, your broker will automatically roll-over your position for your convenience at a cost, known as the rollover fee, swap fee or charge. However, a small number of brokers offer swap-free accounts. This could make a big difference to the profitability of your trades in you plan to invest over medium to long periods of time.
Go long or short
All Forex trades involve the simultaneous buying and selling of currency pairs. For example, when buying EUR/USD you are actually buying Euros while selling US dollars at the very same time. This makes it possible to profit from rising and falling markets, as long as you are on the right side of the trade.