The benefits of forex trading

The foreign exchange market (forex, or FX for short) is the largest financial market in the world. It offers many benefits for traders - including convenient market hours, high liquidity and the ability to trade on margin. Here are eight of the biggest benefits:

1.    Ability to go long or go short

With forex trading, it’s possible to profit whichever way the market goes. This is because it involves selling one currency (the quote currency) to buy another (the base currency). The price of a forex pair is how much one unit of the base currency is worth in the quote currency. 

So in the example above, GBP is the base currency and EUR is the quote currency. If GBP/EUR is trading at 1.12156, then one pound is worth 1.12156 euros. If you think that the pound is going to increase against the euro, you would buy the pair (going long). If you think that the pound will decrease in value against the euro, you would sell the pair (going short). Your profit or loss would depend on the extent to which you get your prediction right, meaning it is possible to profit whichever way the market moves.

2. Forex market hours

The foreign exchange market is open 24 hours a day, five days a week – from 9pm Sunday to 10pm Friday (UK time). That’s because forex transactions are completed between parties directly, over the counter (OTC), rather than through a central exchange.

There are four major trading sessions each day, matching the opening hours of banks in London, New York, Sydney and Tokyo. There is a high volume of trades throughout each of these sessions, and especially when sessions overlap.

*Note: Actual times depend on local business hours. Times may vary in April and October as countries shift to and from daylight savings on different days.

3. Currencies have high liquidity

The FX market is the most liquid market in the world, meaning there are a large number of buyers and sellers looking to make a trade at any given time. Each day, over $5 trillion dollars of currency is converted by individuals, companies and banks – and the vast majority of this activity is intended to generate a profit. 

High liquidity means that transactions can be completed quickly and easily, so the transaction costs – or spreads – are often very low. This creates opportunities for traders to speculate on price movements of just a few pips.

4. Volatility creates trading opportunities

The high volume of currency trades each day translates to billions of dollars every minute, which makes the price movements of some currencies extremely volatile. Traders can potentially reap large profits by speculating on price movements in either direction. However, volatility is a double-edged sword – the market can quickly turn against you, so it’s important to limit your exposure with risk-management tools.

5. Leverage can make your money go further

IG offers foreign exchange trading via CFDs. CFDs are leveraged products, which can make your money go further. Leverage enables you to open a position on the currency market by paying just a small proportion of the full value of the position up front. For example, opening a trade on EUR/GBP might require a deposit worth just 2% of the total value of the position. This initial deposit is referred to as margin.

The profit or loss you make will reflect the full value of the position at the point it is closed, so trading on margin offers an opportunity to make large profits from a relatively small investment. However it can also amplify any loss, so losses can exceed your deposit. For this reason, it’s important to consider the total value of the position before trading CFDs.

To help you manage your risk, IG offers a range of risk-management tools including stop losses, guaranteed stops, price alerts and running balances.

6. Trade a wide range of currency pairs

Forex trading gives you the opportunity to trade a wide variety of currency pairs, speculating on global events and the relative strength of major and minor economies.

With IG, for example, you can choose from over 90 currency pairs, including:

  • Major currency pairs, eg GBP/USD, EUR/USD, and USD/JPY
  • Minor pairs, eg USD/ZAR, SGB/JPY, CAD/CHF
  • Emerging currency pairs, eg USD/CNH, EUR/RUB and AUD/CNH
  • Exotic pairs, eg EUR/CZK, TRY/JPY, USD/MXN.

These pairs are all available to trade from the same account via a single login.

7. Multiple ways to trade

IG offers a range of trading platforms on web, mobile and tablet, as well as specialist platforms for those looking to take their trading to the next level.

We also offer a number of products designed to help you improve your forex trading:

  • IG Academy is loaded with clear and engaging forex trading courses designed with the beginner in mind
  • Our free demo account gives you completely risk-free access to $100,000 in virtual funds, so you can try forex trading and our technology without committing any capital

Open an account now

It’s free to open an account, takes less than five minutes, and there’s no obligation to fund or trade.

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IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

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