AUS
NZ
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ITA
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SWE
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RUS
CHN
UAE
Forex trading simply involves the exchange of one currency for another. It is one of the most traded financial markets across the globe. It is by far the most liquid financial market worldwide. On average, it has a daily turnover of at least US$6.5 trillion, which marks a significant increase from US$5 trillion recorded a few years ago. Besides the rise of cryptocurrencies and the popularity of forex can influence processes of economic globalisation.
A unique property of the forex market is that there is no exchange in a central location since all trading can be completed electronically through computer networks. Usually, these currencies are traded in pairs. When you exchange one currency for another, you predict that one currency will fall or rise in value with respect to the other. Currency pairs are influenced by several factors, including economic, geopolitical and political events.
These factors affect demands for forex. This creates volatility, which measures the extent of price swings within a period. This price variation offers traders new opportunities. Trading forex involves the use of technical analysis to carefully study price trends and actions. These price swings can help investors identify clues about supply and demand levels. It is easy to come across various forex trading strategies for beginners.
So, irrespective of your trading experience, several tools can help you trade better. Once you can get yourselves acquainted with these tips and strategies, it becomes easy to see various benefits of forex trading. To lend you a hand, this guide will provide a deep insight into the reasons why forex trading should be your priority.
Why should you prioritise forex trading?
Choosing the right market to trade in requires optimal trading conditions that can present an opportunity to make a profit. Investors think that the forex market meets these criteria due to several reasons, some of which are introduced as follows:
Ability to go long or go short
Even though you can easily go short on other markets, short selling remains an inherent part of forex trading since selling one currency (quote currency) is always followed by buying another currency (base currency). The worth of a unit of the base currency in the quote currency determines the price of a forex pair.
Take, for instance, the base and quote currencies in the forex pair GBP/EUR are GBP and EUR, respectively. Now, if GBP/EUR is currently trading at 1.1512, then this means that the equivalent value of one pound sterling is 1.1512 euros. If you predict that the value of the pound would decrease against the euro, you can opt to sell the pair, which implies going short. However, if you think the pound would increase in value against the euro, you can purchase the pair, which implies going long. The profit or loss will be determined by how right your prediction is. This makes it possible for you to gain profit by either going long or short, depending on the market movement.
Forex market hours
As mentioned earlier, the foreign exchange market is available 24 hours a day and five days a week. Moreover, forex is open from 9 pm on Sundays to 10 pm on Fridays. These long hours are because there are no central exchanges that can complete a transaction. Rather, these transactions are carried out directly between parties.
You can always exploit various forex trading hours since forex is a global market.
High liquidity in forex
The forex market is the most liquid market across the globe. This implies that there are a plethora of buyers and sellers who wish to make a trade at any period. Individuals, banks and companies convert more than US$5 trillion of currency daily.
Besides this, the high liquidity of this market implies that it becomes easier and faster to complete transaction costs, thereby making transaction costs very low.
Conclusion
The forex market keeps growing in popularity and investors are often exposed to favourable conditions that can help them make a profit. High volatility of the forex market can ensure that investors can get a good return on their investments. However, to fully enjoy benefits of the forex market, ensure that you adopt risk management tools to limit your exposure.