Forex is something trending these days. Trading in foreign exchange is known as forex, where traders buy and sell currency to earn profits.
It’s a global market, where trading happens all over the world. Some largest markets located in major financial centres like Tokyo, New york, London, Hong Kong.
This market has various participants like financial institutions, banks, brokers, speculating the trend of currency pairs.
Most of the people find it interesting for retail purposes or take it as a hobby to earn passive income. If you want to invest then make sure that it’s a right market for individual investments.
But with great rewards comes great risk. Forex trading is a highly volatile market, and it's not uncommon for traders to lose money as well. That's why it's essential to approach forex trading with caution, discipline, and a sound trading plan.
So, sharing some of the benefits with you, to let you know that’s it’s for you or not.
Every trader has a different perspective to trade in forex, and learning must be there form different sources before investing.
1. For beginners, it’s a good start-
In forex market, accessibility is one of the benefits where trader can enter without huge investments. Without affecting the amount of capital you put down, successful trading requires skills and learning. Some softwares allow you to trade in demo mode without any risk, where you can hit and trial without buying, this demo software gives you the exact experience of live trading and familiarise yourself with the market movements and develop a risk management strategy without taking any risk.
2. 24 hour Trading is on
Another good point in forex is the rolling hours. Transactions are made between the trading parties which are called as OTC (over the counter). While on weekends, markets are closed for retails traders but the rates are continuously moving and this must be considered in the trading plans to limit your risk.
3. Leverage benefit is available
In this market, traders are allowed to open their position with higher amount with low capital investment. Regular brokers provide you the leverage in terms of the ratio, limiting maximum leverage for retail traders. The common ratios are 1:30 and 1:50, so the retail traders can do trading of $50 with an investment of $1.
4. High liquidity is available
In the financial terms, liquidity is something where you can buy or sell any asset with an ease without affecting the value of the asset. So the liquidity depends upon the activeness of the market. As this is a global market, which is dealing in certainly high volume and 24 hour activity in process.
So if you are dealing in major currency pairs of forex like DOLLAR, GBP, EURO, so these assets can be easily exchanged without any high fluctuations.
5. Low transaction cost
Not only entry is cheaper but the regular costing is also low in this market. In general, brokers make money from spreads measured into point in percentage and factored into the price of currency.
Note: Pip stands for ‘point in percentage’ and is the unit of measurement used to show a change in one currency’s value against another.
External factors influence the forex market in different ways;