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Currency Trading
Advantages Over Stock Trading and Futures Trading
Until recently, day traders have focused their efforts predominantly in the stock and futures market, despite the fact that the foreign currency market (also know as the forex market) is by far the largest and most liquid financial market in the world. The reason for this has been mainly the restrictive nature of currency trading services offered by banks. The list below explains some of the advantages of currency trading over stock and futures trading.
24-hour currency trading
Foreign exchange market trading occurs over a 24 hour period picking up in Asia around 23:00 GMT (6:00 PM EST) Sunday evening and coming to an end in the United States on Friday around 22:00 GMT (5:00 PM EST). So, whether it's 6 PM or 6 AM, somewhere in the world there are buyers and sellers actively trading foreign currencies. Traders involved in currency trading can always respond to breaking news immediately.
Although after-hours trading in stocks can be achieved via ECNs (electronic communications networks) and in futures via electronic systems like Globex, the prices can be uncompetitive since the liquidity is often low. For foreign currency trading this is not the case. The currency trader can get tight spreads around the clock and can thus pick and choose whatever trading hours are the most convenient for him. Little money needed to start day trading currencies
Day trading currencies requires a lot less starting capital than day trading stocks. To day trade stocks a day trader needs at least $25,000 by US law, otherwise he is restricted in the number of daily transactions he can make. This restriction does not exist in the online currency trading market. You could open an account with as little as € 500. Currency day trading is the best option for a serious day trader.
No Commissions
Online discount brokers typically charge anywhere from €5 to €30 a stock trade. Full-service brokers usually charge €100 or more for each stock transaction. Futures trades can be from €10 to €30 a round turn. Forex trading is commission free. Thus, investors involved in foreign currency trading could limit the cost associated with trading
Lower operation fees
To be a serious stock day trader, a person needs a direct access trading system. These systems can cost from about €250 to €400 or more a month. Currency trading can be done through a sophisticated online system for free. Our trading platform is top-of-the-line and has the same (or more) features that quality stock trading systems provide. The main difference is that our currency trading system is free.
Tighter Bid/Ask Spreads
If we compare our currency trading platform's typical spread of 5 pips on a the EUR/USD currency pair to a stock transaction, we could see how online currency trading could offer tighter spreads than stocks. A 5 pip spread (0.0005) on 1 lot (100,000 per lot) is €50. If a stock trader trades a stock with an average price of €25 a share, he would have to trade 4,000 shares to reach the 100,000 value of one currency lot. Assuming the stock is very liquid, the spread would vary between 0.01 to 0.02 or more per share throughout the day. This is equivalent to €80 per transaction, much higher than for our currency trading example.
Superior Margin Requirements
Our 100:1 margin (1%) requirement for foreign currency trading allows a trader to control €100,000 worth of currency for only €1,000. This is much higher than the requirement for stocks and futures. The typical requirement for stock trading is 2:1 and 15:1 for futures trading.
The substantial leverage available in the foreign currency market is essential because the average daily move of a major currency is less than 1%. While certainly not for everyone, the substantial leverage available from online currency trading firms can be a powerful, moneymaking tool if applied while following a discipline trading style with strict money management principles. See the "Benefits and Risk of Leverage" section in the disclosure section. Superior liquidity in the currency markets
The foreign currency trading market has a daily trading volume that is larger than that of all the world stock markets put together. This means that there are always currency broker/dealers willing to buy or sell currencies in the forex markets. Consequently, price stability is assured, especially for the major currencies. Currency traders can almost always open or close a position at a fair market price; a key advantage of currency trading.
Because the stock market and other exchange-traded markets only have a fraction of the volume of the currency market, these investors run a greater risk of having wide dealing spreads or large price fluctuations while trading. No Limit up / limit down in the currency spot market
Under certain price conditions, the number and types of transactions that a futures trader can make are limited. The futures market restricts a trader from initiating new positions and only liquidating existing ones, if the price of a specific currency rises or falls beyond a specific predetermined daily level. This is an artificial way to control daily price volatility. This mechanism is meant to control daily price volatility, but since the futures currency market follows the spot currency market anyway, the next day the futures price can gap up or gap down to readjust to the spot price. In the foreign currency spot market these artificial restrictions are nonexistent, so the trader can trade freely without limitations, applying his trading strategy with stop losses to protect himself from unexpected price fluctuations caused by high volatility.
No short-selling restrictions in currency trading
There are no restrictions to sell currencies short, unlike stocks which have to be sold short on an Uptick rule. This means that with currency trading you can make money just as easily in rising and falling markets. This advantages is especially attractive to currency day traders who want might want to sell a currency short quickly, without any possibility of the trade being delayed by artificial means.
All of these advantages make currency trading superior to stock and futures trading
This Pro-Forex-Trade Web Site contains information obtained from sources believed to be reliable and has been prepared in good faith and with all reasonable care. Pro-Forex-Trade makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this Web Site. Pro-Forex-Trade nor any of its providers of information, have any liability to the user, or any other third party, for the accuracy of the information or models contained in this Web Site, or for any errors or omissions therein, nor will Pro-Forex-Trade or any of its providers of information have any liability for the use, interpretation or implementation of the information or models contained herein by any person.
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