Part II: Why Should I Trade Forex

Advantages of Forex

Trade on Your Schedule

The single biggest advantage the forex market has over other markets is its 24-hour nature. A trader can put on or take off positions literally any time of day or night, regardless of their base of operations. That opens the game up to a great many individuals who might not otherwise have the time available to trade.

Consider, for example, the working person with a 9 to 5 type of job. Most folks like that cannot be expected to operate effectively as day traders in a market such as stocks. They just can't spend the requisite time watching the market during trading hours. With forex, though, one could theoretically day trade in the evenings after work, or in the mornings beforehand. The forex market is never really closed (yes, in some cases you can even trade on the weekend!).

No (or low) Transaction Costs

For most traders, the forex market also offers the benefit of no transaction costs. For the most part, forex brokers do not charge commissions (if they do, they are relatively small). There is, of course, the bid/offer spread, which can be viewed as a transaction cost, but the reality of the situation is that most traders buy at the offer and sell at the bid in whatever other market they trade, so that's really no different. Actually, the forex spreads can be quite small in the major currency pairs.

Low (or no) Account Minimums

Forex trading is also open to a wider trading demographic in that there are many opportunities to open smaller accounts than is the case in other markets. In fact, there is at least one broker which has no minimum account size. What's more, they also have no minimum trade size. That sort of flexibility opens the door to essentially anyone who wants to explore forex trading. This isn't to say that all brokers are that flexible. There are, however, a great many which offer so-called mini-contracts.

Multiple Trading Vehicles

Additionally, forex trading can be done in a number of fashions. Many folks tend to think strictly of the spot market. While that is certainly the largest of the components, it is not the only one. The futures market has become a bit more attractive with the expansion of e-mini currency contracts. There are futures options as well. What's more, an array of other option trading alternatives have been popping up, providing traders even more ways to take positions in the forex market.

Always Moving

One of the biggest attractions to forex trading is that there's just about always something moving. There are a number of primary currencies involved, each of which is continuously interacting with all the others. Chances are, at any given time, there is movement in at least one of those exchange rates based simply on the sheer volume of trading and the number of global news events providing impetus to action.

Easily Trade Long or Short

In the stock market there are restrictions imposed on selling short. In forex there is nothing of the sort. It is just as easy to taking a short position as it is to take a long one.

Disadvantages of Forex

No Exchange

The disadvantage to forex, some would say, is in the lack of an exchange system in forex trading. Some traders find comfort in knowing that there is a regulated mechanism backing their market participation. What's more, the lack of a centralized data point means the spot forex market does not have all the great add-on information stock and futures are used to seeing (volume, for example).

Complex Nature

In terms of market analysis techniques, technical analysis is just as useful in forex trading as in any other market - some might say more so. The thing that gives some traders concern. however, is the complexity of the fundamental side of the forex market. Currency exchange rates are influenced by a wide variety of factors, which can fluctuate over time.

Two-Sides to Every Position

By it's very nature, there are always two sides to the forex market, because currencies are quoted in terms of their value against each other. That means for any given exchange rate there are two countries (or region's) to take in to consideration. Sometimes issues related to one of the countries will dominate, while sometimes the other will. It can be quite fluid in that regard, which can sometimes lead to quite confusing reactions to news and events.

While these issues may seem like significant barriers to trading forex for some, the fact of the matter is that for most folks they are easily overcome. Just like any market, forex requires some getting used to. Once you do, though, it provides a wide array of opportunity.