If you’re someone who is looking to get into day trading, Forex is a great market to opt for. There are some risks we should know before getting involved with Forex trading, such as it being more volatile than equities generally speaking, but this can actually be used to our advantage.
Before jumping into Forex trading, one of the most important things to get right is choosing between forex brokers. Generally, you want one with low fees, fast transactions, good charting capabilities, and perhaps a generous promotional offer to wet the whistle.
Below are some reasons behind Forex being a good investment:
As a retail trader, one thing that’s really important is trading opportunities. If we look at stock equities, not only do the markets close by the time we get home from work, but many equities trading strategies (though not all) hold positions for longer. Forex markets, on the other hand, never sleep (besides on the weekend). This also makes it possible to trade over the conter.
Furthermore, being a global market unlike a regional stock exchange, there is always high activity somewhere in the world. This gives the trader more choice.
Volatility in the Forex market
Volatility is associated with high risk, and rightly so. But, it’s also associated with high rewards. The Forex market is generally quite high in its volatility, but for most day traders, this is merely an opportunity. This means that prices will be moving fast enough to capture intraday profits, thus allowing for higher frequency of trades – and thus more trading opportunities.
The only caveat here is that risk management tools become all the more important in Forex; but this can be a good way to sharpen it.
Forex markets are considered to be the most liquid markets in the world. There’s a huge amount of buyers and sellers, with trillions of dollars being traded each day. Again, this leads to more trading opportunities as trades are completed faster and more easily. Faster trades are often a more secure way to execute a trading strategy exactly how it’s intended. The high liquidity also means the spreads are very small, so less of a price movement is needed to be in profit.
Leveraging laws in the EU have set the maximum leverage to 30:1. This is the limit you may get at some brokers, however, it’s not the limit for many markets. Generally, you will find crypto, stocks, and commodities being around 5:1 to 20:1 at the most. This means that Forex has yet another advantage – more room for leverage.
Of course, it’s up to the trader if they want to use this much leverage, but it’s important to have as many choices as possible. Leverage can help a trader take up larger positions with only a small amount of capital by using borrowed broker funds to trade a security (in this case, currency).
Good for both fundamental and technical analysis
Whilst other markets can often be traded with both technical and fundamental strategies, Forex is heavily impacted by the news, policy, and economics. This means that traders have the option to either use technical analysis – which underpins most of the intraday price movements – or fundamental analysis.
Beyond the analysis, forex is also commonly used as a hedging product. There are many strong relationships when it comes to currency, such as gold rising when the USD is weakening. USD/CAD also has an inverse relationship to crude oil. This means that if a trader predicts a commodity to change in price, they have the option of capitalising on it through Forex – or simply hedging it.
Large trading community and tools
Forex is a huge market that is popular with retail traders all around the world. This has resulted in there being endless literature, courses, and forums dedicated to trading currency. For someone starting out, resources like this are your most important asset and they will help develop a profitable trading strategy. Of course, it can be difficult to sift through genuine education and snake oil, but nonetheless, the resources are out there to be found.
It’s not just learning tools are plentiful with forex, but also trading tools. Trading platforms are well aware of Forex’s popularity among day traders and are thus competing on who has the best tools. This includes things like charting customisation, technical indicators, and news feeds.
On the whole, Forex trading offers the most amount of versatility and choices as a trader. The high liquidity, 24/5 markets, and greater volatility means there are endless trading opportunities at any time of the day. Beyond trading opportunities, there’s a strong community of forex traders with who you can connect with, and a ton of learning resources. Trading platforms are also aware of Forex’s popularity among new traders, hence why there are many strong signup offers and platform tools centred around currency trading.