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The Forex, FX or foreign exchange market has many advantages over other types of tradin. Since it is an OTC (over-the-counter) market, the Forex market is open 24 hours a day five days a week. Also unlike other investments you only need a small amount of capital to trade Forex so everyone can enter the market with a little investment.
The forex market is the largest and most liquid of the financial markets with trading volume exceeds $4 trillion USD a day.
Forex spot trades consist of a contract to trade a given amount of a currency pair derivative with a market-maker, at the advertised buy / sell price (the spot rate).
It is the existence of volatility within the forex market that enables trader’s to take advantage of exchange rate fluctuations for speculative purposes.
Traders must be aware that greater volatility also means greater risk potential.
When trading currencies on the spot Forex market you have full control of your capital, meaning that you can buy and sell your positions anytime during market open period. This is a definite advantage because, if you need to use your account money, it can be accessed immediately without additional commission or waiting periods.
In spot forex, you determine your own lot or position size. This allows traders to start trading with accounts as small as $100.
Also, in Forex, with a small amount of money, you can control bigger market positions using the leverage or margin trading. Leverage of 1:100 is common in the Forex market. It allows you to control amounts 100 times bigger than your capital, while leverage of 1:500 can be found with some companies as well.
Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit, since short-selling is a subject to strict limits in stock exchanges. Forex traders can make a profit during both uptrends and downtrends of the market. Forex trading is rightfully considered risky but with a good trading system to follow, good money management skills, and some level of self-discipline, the risks of Forex trading can be minimized considerably.
The Forex market can be traded anytime and anywhere. As long as you have access to a computer and internet, you have the ability to trade the Forex market. An important thing to remember before jumping into trading currencies is that it is worth practicing on the demo account. Most foreign exchange brokers have demo accounts where you can download their trading platform and practice in real-time with real market data but with “virtual money”. While profitable demo trading cannot guarantee your success with real money, practicing can give you a huge advantage to become better prepared when you start trading with real money.
No one can controls the Forex market. The foreign exchange market is so huge and there are so many participants that no single entity and not even central bank can control the market price for an extended period of time.
Also the forex market is so enormous and extremely liquid. This is an advantage because it means that under normal market conditions, with a click of a mouse you can buy and sell at will as there will usually be someone in the market willing to take the other side of your trade. You can even set your online trading platform to automatically close your position once your desired profit level (take profit) has been reached, and/or close a trade if a trade is going against you (stop loss).
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