BENEFITS
OF FOREX
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Below
are the benefits of trading the Forex markets:
Minimum
Brokerage Commissions
Transacting in the FOREX market does not require
much brokerage commission expense. As any experienced
trader knows, equity transactions and futures
transactions both require brokerage commission
that, in some cases, constitute a significant
expense. Minimum brokerage commission is an
immediate cost saving to the FOREX trader.
Minimum
Starting Balances
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The
minimum starting balance for accounts is $300 thus placing
FOREX trading within reach of those individuals who
have only a modest amount of risk capital. Furthermore,
an operational FOREX policy automatically closes all
open positions the moment margin in an account drops
below the required level. This helps to ensure that
the trader never loses more money than that originally
deposited.
Streaming
Real-Time Quotes
In the FOREX market, traders execute directly off
streaming real-time bid and offer quotes. The bid
or ask one sees quoted is typically the price at which
one is able to deal. Whilst there may arise discrepancies
between the two, it should be noted that in most markets,
a trader may face uncertainty with regard to price
fills for an order, especially when transactions are
executed on an exchange floor to which the trader
does not have direct access to.
Open
24 hours a Day
The FOREX market operates continuously from its open at
2pm Sunday afternoon New York time with the Sydney-Auckland
market until its close at 5pm Friday in New York. FOREX
trading follows the day around the world: from Sydney to
Tokyo to London to New York. The seamless 24-hour nature
of the FOREX market enables the trader to react to news
as it occurs - regardless of the time. It gives the trader
the flexibility to set their own hours of the trading day.
Real
Time Reporting
In the Forex market, traders can see the value of their
positions and account equity move up and down with the market
in real time. This key information for every account is
re-calculated and updated every time the exchange rates
change. Traders have immediate access to detailed information
regarding every open position, open order, and the generated
profit/loss per trade.
High
Leverage *
Margin nodoubt, is required to trade FOREX but margin
is not a down payment on purchase of equity, as in
the stock market, but rather it serves as a performance
bond or good faith deposit, as in the futures market.
Margin is required to ensure ones ability to handle
the financial risk of the trade. With FOREX, the required
margin is only a very small percentage of the market
value of the position being traded. For example, margin
of the mini contracts typically is under $200. (Margins
vary.) This is referred to as leverage*. In other
words, by using leverage*, a trader can hold a position
much larger than the account value. High leverage*
means that a change in FOREX prices will have a much
larger impact on the dollar value of the account and
this can work both in favor of the trader and against
the trader.
Real-Time
Charts and News
The availability of real-time charts and news - along with
streaming real-time quotes - enables the FOREX trader to
react immediately to developments as they unfold. There
is no need to wait until the market opens before taking
appropriate action.
Flexible
Contract Sizes
FOREX traders can choose among two types of accounts:
Standard
In this account, the size of a trade can be 100,000 units
of foreign currency. The latter is referred to as a "standard"
contract and is similar in size to a typical futures contact.
Mini
In this account, the size of a trade is 1/10 the standard
contract, or 10,000 units of foreign currency. This is referred
to as a "mini" contract. Profit and loss is one-tenth
the amount of the corresponding standard contract.
There
is no difference in price or liquidity between the different
unit sizes. The only difference is that the smaller unit
sizes have smaller risk and therefore, smaller margin requirements.
The trader has the flexibility in selecting a contract size
that is appropriate to their amount of trading capital and
tolerance for risk.
Automatic
Closure
An important element of risk management in FOREX trading
is the automatic closure of all customer positions
in the event that funds in the account fall below
margin requirements. This prevents a trader's account
from falling into a negative balance.
*
The high degree of leverage that is often obtainable
in forex trading can lead to large losses as well
as gains
