Over the course of many years, a large quantity of investors has been able to gain enormous wealth by making trades and utilizing the markets to their advantage. These individuals most likely lost some along the way, but they stuck with it and eventually hit that sweet spot. Since all investors are unique and their preferences vary substantially, it is essential to find your own rhythm, before moving forward. Although stocks and bonds can be exciting, you should not ignore the potential of trading Forex. As with other trading instruments, Forex has an array of benefits, which make it very attractive for many traders. In order to determine whether or not Forex is right for you, it is vital to scour through the benefits of Forex below.
What Is Forex?
Before rushing ahead, it is a good idea to learn about the basics of trading forex with CMC Markets. Forex is simply a short phrase used commonly in place of the Foreign Exchange Market. This particular market is also frequently referred to as FX and the currency market. When looking at forex in this manner, currency market perfectly classifies Forex. This is the case, because Forex is all about trading, selling and exchanging currencies. This market has become the biggest and most popular. When compared to other worldly markets, Forex actually receives a higher volume of trades each day.
This is truly no coincidence. The benefits associated with FX trading makes it one of the most reliable, exciting and potentially profitable for all.
Leverage
One of the biggest and most notable benefits associated with Forex is the fact that investors will be able to utilize leverage. If you’ve been trading for a significant period of time, you’re probably well familiar with leverage. If not, you should learn about it right away, since it can be very beneficial. With leverage, it is possible to deposit a minute amount into your account and still make large trades. Of course, the leverage ratio provided will depend and truly varies on the broker in question.
With CMC Markets, it is possible to utilize .20% margins, which equates to 500:1 leverage. By utilizing such an arrangement, it is possible for investors to take a small amount of money, use the leverage and place a much larger trade. In the long run, if the trade is wise, the investor will be able to earn much larger revenue thanks to the leverage. Just remember that this is truly a two-way street and using leverage could result in bigger losses, which exceed the amount you initially had.
OTC Market 24 Hours
If you’ve ever invested in a stock market, you will know that stocks can only be traded when the markets are open. The market hours will depend on the specific exchange in question, but none of them are open twenty-four hours a day. Forex is entirely different, since it is actually and OTC, over-the-counter, market. This type of market is decentralized, so there is no centralized exchange.
Throughout the day and night, investors can and do make Forex trades. Aside from the weekends, the Forex market receives activity constantly and the trades never stop. This gives investors the ability to adjust and make trades depending on political and other real world events. Thanks to being able to trade twenty-four hours a day, the market is always volatile and investors can almost certainly find a potential trade to make, regardless of the time in their residential area.
Additional Liquidity
It is also vital to remember that this market is the most populated and is more active than any other. In fact, the market can experience a few trillion dollars worth or turnover on a daily basis. This helps to ensure that the market is actually more liquid than any other market in the world.
Some Risks Involved
Although Forex can be immensely beneficial and incredibly profitable, there are some risks involved. First and foremost, the leverage, although it can be considered a good thing, can also be somewhat dangerous. If you utilize leverage and make a bad trade, you could incur substantial losses, which greatly exceed your initial investment. The good news is that you can always keep your risks low, by relying less on leverage.
Another thing to consider is the exchange rate. Since the Forex market operates throughout the day and night, the exchange rates also differ depending on the current time. If you’re not careful, you may be hit with unexpectedly high exchange rates, due to the fluctuation.
Conclusion
When it comes down to it, trading currency pairs can be very exciting and could very well lead to massive profits. Just remember to learn about the risks involved with leverage, before you put yourself into a potentially risky situation.
