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Advantages of Forex
Below are short and clear explanations of the key advantages of the forex market.
Leverage
Leverage: A unique feature of the forex market. Leverage allows large-scale trades with small to medium investments. However, the investor’s risk is limited to the amount of capital invested.
Two-Way Trading
Two-way trading advantage: Investors in the forex market don’t need to only open buy positions. The dual-direction feature allows traders to benefit from falling prices by opening sell positions in a declining market.
High Liquidity
High Liquidity: The forex market allows trading at any volume at a single rate simultaneously across different parts of the world.
Non-Manipulable Market
Non-manipulable market: High liquidity enables free interaction of supply and demand to determine exchange rates. Such a market responds better to technical and fundamental analysis methods.
24/5 Market Hours
24/5 Market Hours: Investors trading in local markets cannot benefit from currency movements outside local market hours. The forex market is international and operates 24/5 (Monday to Friday) due to global time differences.
Accessibility
Accessibility: Open for online trading 24 hours a day, 5 days a week.
Trading Time
Trading time: A trader can place trade orders at any time and at any rate.
Low Cost
Low Cost: Forex traders only bear the spread cost and do not pay commissions for their trades. However, overnight swaps are applied to positions carried over to the next day. CFDs include both spread and commission costs.
Risk Warning
Forex trading involves leverage and carries risk. This information is for informational purposes only and does not constitute investment advice.
What should I be aware of when using leverage?
Leverage amplifies both gains and losses; position size, stop-loss, and risk management rules should be set.
Why is liquidity important for investors?
Liquidity helps ensure orders are executed close to desired prices and keeps spreads tight.
What is the cost difference between CFD and spot forex?
Spot forex typically involves only spread costs, while CFDs may include additional commissions and overnight swaps. Always check your broker’s conditions.
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