February 10, 2017
Now, let’s discuss why forex is suitable for you.
Whatever your approach to trading is, it is possible to implement it in forex. If you are a day-trader and find it exciting to follow the markets all day round, you can do it. Looking at the charts and following forex-related news from all over the world is the best way to gain experience and learn trading. If you have a day job and want to analyze the market in the evening, to place a trade and let it open a few days, that is also possible.
A market is always open somewhere – be it in Tokyo and Sydney or Frankfurt and London. This is a very effective approach, as it prevents overtrading if you stick all day in front of a trading platform. Forex offers something for every type of trader, be it a day trader, a swing trader, position trader or scalper. We will touch later the different types of traders and their characteristics.
Unlike a traditional stock broker, a forex broker has no commissions, no middleman, no fixed lot size and low transaction costs. As we already said, a forex broker makes his profit from the difference between the bid and ask price of a currency quote. The spread is very tight on the major currency pairs like EUR/USD, GBP/USD or USD/JPY, often as low as 1-2 pips (a pip is the smallest increment a currency pair fluctuates, if EUR/USD goes from 1.1245 to 1.1246, it changed one pip).
The value of a pip varies with the size of your position, ranging from just a few cents for a small position to a few dollars for a large position. You can open positions of any size you want, if you have sufficient margin to finance the position. There is no fixed lot size in forex.
The volatility in forex can be very high, especially in periods of important news-releases. In these circumstances, currency pairs can move easily a few hundred pips in a short time. Combined with the high liquidity that forex offers, and the trading sessions which are open around the clock, there will always be an opportunity to place a trade and make a profit in forex. When compared to stock- or futures markets, this makes the currency market one of the most profitable financial markets out there. The following table shows the average daily range for some of the forex pairs.
The pair GBP/JPY (British pound/Japanese yen), has traditionally the highest volatility when compared to the other pairs. As you can see, there is no lack of excitement in forex!
Test Your Knowledge: Why Traders Love the Forex Market
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Question 1 of 4
Like traditional stockbroker, a forex broker has commissions, middleman, a fixed lot size and transaction costs.Correct
Question 2 of 4
A pip is the smallest increment a currency pair fluctuates.Correct
Question 3 of 4
The value of a pip can vary with the size of your position, ranging from just a few cents for a small position to a few dollars for a large position.Correct
Question 4 of 4
Which of the following traditionally has the highest volatility when compared to the other pairs.Correct