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Below are a list of benefits of trading the Forex markets: No Brokerage Commissions: Transacting in the FOREX market does not require a brokerage commission expense. As any experienced trader knows, equity transactions and futures transactions both require brokerage commission that, in some cases, constitute a significant expense. For example, brokerage commission in the futures market may fall anywhere from $25 to $75 per contract. The absence of brokerage commission is an immediate cost savings to the FOREX trader. Small transaction fees may apply when FOREX trading, but these are typically in the neighborhood of one dollar per transaction. Minimum Starting Balances: The minimum starting balance for both the Flexi and Mini accounts is $300 and this places FOREX trading within reach of those individuals who have only a modest amount of risk capital. Furthermore, there is an operational FOREX policy to automatically close all open positions the moment that margin in the account drops below the required level, and this helps to ensure that the trader never loses more than the money that was originally deposited. Streaming Real-Time Quotes: In the FOREX market, traders execute directly off streaming real-time bid and offer quotes meaning that there is very little uncertainty of the fill price of an order. The bid or ask that you see quoted is typically the price at which you are able to deal. While there may, on rare occasion, be a slight discrepancy between the two, it should be noted that in most other markets, a trader faces greater uncertainty of the fill price of an order, especially when transactions must be executed on an exchange floor to which the trader does not have direct access. Streaming real-time FOREX quotes ensures that market, limit and stop orders are typically executed without partial fills and without slippage. Open 24 hours a Day: The FOREX market operates continuously from its open at 2pm Sunday afternoon New York time with the Sydney-Auckland market until its close at 5pm Friday in New York. FOREX trading follows the day around the world: from Sydney to Tokyo to London to New York. The seamless 24-hour nature of the FOREX market enables the trader to react to news as it occurs - regardless of the time. And it gives the trader the flexibility to set their own hours of the trading day. Real Time Reporting: In the Forex market, traders can see the value of their positions and account equity move up and down with the market in real time. This key information for every account is re-calculated and updated every time the exchange rates change. Traders have immediate access to detailed information regarding every open position, open order, and the generated profit/loss per trade. This means that a trader never has to approximate account equity or be uncertain in regards to available margin. High Leverage: Margin is required to trade FOREX but the margin is not a down payment on a purchase of equity, as is the case in the stock market, but rather it serves as a performance bond or good faith deposit, as in the futures market. The margin is required to ensure your ability to handle the financial risk of the trade. With FOREX, the required margin is only a very small percentage of the market value of the position being traded. For example, margin of the mini contracts typically is under $200. (Margins vary.) This is referred to as leverage. In other words, by using leverage, a trader can hold a position much larger than the account value. High leverage means that a change in FOREX prices will have a much larger impact on the dollar value of the account and this can work both in favor of the trader and against the trader. Real-Time Charts and News: The availability of real-time charts and news - along with streaming real-time quotes - enables the FOREX trader to react immediately to developments as they unfold. There is no need to wait until the market opens before taking appropriate action. In other markets, real-time quotes, charts and news are available only at considerable cost, in some cases, hundreds of dollars per month. Flexible Unit Sizes: FOREX traders can choose among three types of accounts: (1) Standard In this account, the size of a trade can be 50,000 units or 100,000 units of foreign currency. The latter is referred to as a "standard" contract and is similar in size to a typical futures contact. (2) Mini In this account, the size of a trade is 1/10 the standard contract, or 10,000 units of foreign currency. This is referred to as a "mini" contract. Profit and loss is one-tenth the amount of the corresponding standard contract. (3) Flexi In this account, the size of a trade can be 1,000 units or 5,000 units of foreign currency. The Flexi account has the smallest contract sizes and, consequently, the smallest risk. There is no difference in price or liquidity between the different unit sizes. The only difference is that the smaller unit sizes have smaller risk and, therefore, smaller margin requirements. The trader has the flexibility in selecting a contract size that is appropriate to their amount of trading capital and tolerance for risk. Automatic Closure: An important element of risk management when FOREX trading is the automatic closure of all customer positions in the event that funds in the account fall below margin requirements. This prevents a trader's account from falling into a negative balance. High Liquidity: Every three years, the Bank for International Settlements conducts a Central Bank Survey of Foreign Exchange and Derivatives Market Activity. The most recent survey was done in April 2001. According to this Survey, the average daily turnover in traditional foreign exchange markets was $1.2 trillion, or $1,200 billion, making it the largest and most liquid market in the world. This market can absorb trading volume and transaction sizes that dwarf the capacity of most other markets. Of the currency pairs, EUR/USD was by far the most actively traded and captured 30% of global turnover followed by USD/JPY with 20% and GBP/USD with 11%. How to Get Started Trading Currencies Many futures and stock traders are aware of the excitement surrounding the currency market. However, because foreign exchange trading was until only recently limited to multinational corporations, money-center banks, and the largest investment firms, forex remains a new and unfamiliar market to many self-directed, retail traders. As a consequence, despite the undeniable advantages that the forex market offers, some online traders are no doubt apprehensive and reluctant to participate. With the passage of time, the benefits will undoubtedly become more widely known and better understood, and more traders will almost certainly migrate from the equity and futures markets. In the meantime, interested traders can take steps to bring themselves up to speed and learn more about this exciting market. Take a Currency Trading Course Almost all forex trading courses available today fall into the self-study or seminar categories. Both have important strengths and weaknesses. The self-study camp is generally comprised of web-based courses, CD-ROMs, workbooks, or any combination thereof. While self-motivated and highly disciplined traders might find self-study courses to be perfectly satisfactory, many traders require the structure of a more formal learning environment and would benefit greatly from individual instruction. Seminars, hosted by various brokers and financial market educators around the country, typically run 1-3 days in length. Most walk traders through at least a fair range of important topics in a more or less methodical way. The drawback, of course, is that in addition to the cost of the seminar, traders must absorb travel and accommodation expenses. And at many seminars, the number of attendees makes personal instruction impossible. Happily, the latest trading courses make use of online technologies to offer a complete curriculum, a perfect mix of convenience and structure, and all the benefits of a classroom environment and one-on-one instruction -- at an economical price. A complete trading course can be put online and broken down into daily lessons (for example, one lesson per day for a full month). Though the trader must log into the website to view each day's lesson, he may do so at any time that's convenient. After each lesson, students have the opportunity to post questions for course instructors and to discuss ideas with fellow students in a virtual classroom. Brief daily assignments and quizzes -- and even individualized feedback from instructors based on the assignments -- all play an important role in reinforcing material and help traders learn each day's lessons. And when a complete online course is combined with a practice trading account, the trader has a risk-free opportunity to apply the lessons and strategies learned, and instructors can offer pointers, tips, and suggestions to help refine and improve trades. This new type of course represents a quantum leap forward in trading education. Many online forex brokers today offer paper trading accounts, and there's simply no better way to familiarize oneself with the currency market and the broker's trading platform. Generally, FX paper trading accounts are identical to live, "real" trading accounts, in that the demo trader enjoys all the same tools and features that are available on the broker's actual system. The trader will get a feel for real-time, continuously-updating bid/ask prices. He can experience order placement and execution. Account balances, margin requirements, and P&L are usually updated in real-time, as well. The only difference, of course, is that paper trading accounts are "funded" with anywhere from $10,000 to $50,000 in hypothetical money, which means that trading methodologies can be tested and evaluated under actual market conditions -- without having real capital at risk. You'll likely find that most demo accounts have limited lives and expire in anywhere from two weeks to one month. But for most traders, that's perfectly acceptable -- after getting the feel of forex trading in a demo account, most traders are enthusiastic about taking the next step and opening a real account. Consider Trading Mini FX for Starters Several forex brokers now offer mini FX accounts, which are designed for those new to online currency trading and those with limited trading capital. Such accounts can be immensely helpful to traders who wish to learn currency trading while minimizing their risk. Instead of trading full-size currency lots (100,000 units), downsized lots (for example, 10,000 currency units) may be traded. Though the leverage in a mini FX account can still be substantial, the smaller lot sizes -- with correspondingly smaller tick values -- means that the trader will be assuming less total risk. For example, while a 20-pip loss on a 100,000 EUR/USD position would be $200, the same loss on a 10,000 EUR/USD position in a mini account would amount to only $20. The Mini FX account can be useful in helping traders develop a disciplined, rational forex trading strategy without excessively focusing on profits and losses. When trading 100,000 currency unit lots in a regular, full-size account, traders with relatively small balances tend to fixate on their equity fluctuations and sometimes base trading decisions on emotional reactions to these fluctuations. Many traders, for example, resist closing-out unsuccessful trades at a loss, because they hope that the market will turn in their favor. Conversely, many tend to immediately take profits when the market moves in the desired direction, rather than maximizing their gains by allowing profits to run. With less capital at stake in a Mini FX account, however, the trader can develop a disciplined trading methodology -- as well as the confidence needed to be a successful currency trader -- without the anxiety and distractions that come with large P&L swings.
Disclaimer - I am not a commodity trading advisor. The information on this site is for trading education only. There are no trading recommendations for any one individual made on this site and this information is paper trades for trading education. All trades are extemely risky and only risk capital should be used when trading. U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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