Are you thinking about entering the Forex market and investing in Forex trading? While it is an exciting market to get into, you’ll have to do some research before getting into the swing of things as it is very different than trading stocks or Futures on exchange. The most important thing for beginners to take note of is what the Forex market is like, and what they can expect from it.
In this post we take a look at some of the most common characteristics of Forex trading, which will provide you with some insights on Forex trading. Let’s get started.
#1: Always-on Trading
One of the main differences between Forex trading and trading stock is the fact that it is an always-on environment. The Forex market is open 24 hours a day 5 days a week, from Sunday night at 5pm EST to Friday at 5pm EST. You’ll be able to trade Forex at anytime from anywhere in the world.
#2: High Liquidity
Because the Forex market is an off exchange product, it offers an unrivaled amount of liquidity. It is over 10 times the size of the New York Stock Exchange based on daily trading volume. An estimated $5 trillion’s worth of transactions are handled each day on the Forex exchange, where the NYSE isn’t even in the billions.
#3: Lots of Forex Trading Pairs
There are tons of Forex trading pairs you can choose from so it can be difficult to narrow it down to the ones that you want to trade. Most brokers offer over 60 different Forex pairs for trading. A lot of new traders focus on the major Forex pairs (EURUSD, USDCAD, USDJPY, USDCHF, AUDUSD, USDGBP) as they are the most liquid trading pairs. And, most people tend to recognize those Forex pairs, much more so than the USDNOK for example.
#4: Transparent Trading
While investing in the stock market can be risky as there are many factors that influences the stock exchange, this is not the case with Forex trading. Macroeconomic and geopolitical forces are the main driving factors of Forex trading. For this reason it is important to understand both the Technical Analysis indicators as well as Fundamental Analysis. Some say, having an economics degree is very helpful when trading Forex.
#5: High Volatility
It’s much easier to invest in and trade Forex than any other market. Keep in mind however that high volatility usually goes hand-in-hand with higher risk. Part of the reason is that Forex is typically done on a leveraged basis, with some Forex brokers offering up to 500:1 in leverage. Where has when trading on a stock exchange your leverage is typically always 1:1, sometimes you can trade ETFs at 3:1, but no more than that.
#6: Low Barrier to Entry
Thanks to the tight spread in terms of pips, it is possible to enter the Forex trading market fairly easy. You don’t need a huge wad of cash to get started building your portfolio when you decide to trade Forex.
And there you have it. This little introduction should have you hyped up and excited to get started trading Forex. While it is more accessible and easier to trade Forex, you should still be up to speed with common Forex trading principles. Do your homework, identify your goals and get started trading Forex today! Need some tips? Read our guide for beginner’s who wish to start trading Forex here.
Always be in the know of what is happening in Forex trading markets by keeping a close eye on what’s happening. We highly recommend a site like Reuters for real-time markets and finance news.