Benefits of forex trading

Why trade forex?

Many traders are drawn to forex for the market’s volatility and extended trading hours compared to other markets like stocks or indices. The main benefits of trading forex are that it enables you to:

1. Seize forex volatility
2. Trade around the clock
3. Go long or short
4. Capitalise on high liquidity
5. Make your money go further with leverage
6. Benefit from tax-efficient products like spread bets and CFDs
7. Choose from a wide range of currency pairs
8. Hedge with forex
9. Access tools to help you trade

Seize forex volatility

The high volume of currency trades each day translates into billions of dollars every minute, which makes the price movements of some currencies extremely volatile. You can potentially reap large profits by speculating on price movements in either direction. But, 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.

Trade around the clock

The forex market is open 24 hours a day, five days a week. With us, you can trade forex from 9pm Sunday to 10pm Friday (UK time). These long trading hours are made possible because forex transactions are completed over the counter (OTC), rather than through a central exchange.

And, because forex is a truly global market you can always take advantage of different active session’s forex trading hours. That said, it’s important to remember that the forex market’s opening hours will vary in March, April, October and November as countries shift to daylight savings on different days.

Go long or short

With us, you’ll trade forex with either spread bets or CFDs. Both are financial derivatives, meaning you can go long or short.

Going long means that you expect the price of a forex pair to rise, while going short means that you expect the price to fall. You’d go long if you think the base currency will strengthen against the quote currency, meaning you expect the pair’s price to rise. Alternatively, you’d go short if you think that the base will weaken against the quote, meaning that you expect the pair’s price will fall.

For reference, the base currency is always on the left of a currency pair and the quote currency is always on the right. The price for a forex pair states how many of the quote currency you would have to sell in order to buy a single unit of the base.

It’s important to note that spread bets and CFDs are leveraged, which we’ll cover further below.

Capitalise on high liquidity

Forex is the most liquid market in the world because there is a large number of buyers and sellers looking to make a trade at any given time. Each day, over $6 trillion dollars of currency is converted by individuals, companies and banks, which is roughly twice the annual British gross domestic product (GDP).

Forex’s high liquidity means that transactions can be completed quickly and easily, and that spreads are often very tight – meaning the underlying market price won’t have to make a significant positive move in order for your trade to be profitable.

Make your money go further with leverage

We offer two ways to trade forex: spread betting and CFDs. Both of these products are leveraged, which can make your money go further. Leverage in forex 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 spread bet on EUR/GBP might require a deposit worth just 3.33% 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. But, it can also amplify any losses, which could exceed your initial deposit. So, it’s important to consider the total value of your leveraged forex trades before you open a position.

We have a range of risk-management tools to help you control your exposure to risk, including stop losses, trailing stops, guaranteed stops and price alerts.

Benefit from tax-efficient products like spread bets and CFDs

Trading forex with spread bets and CFDs can offer significant tax benefits:

• Spread betting is completely tax free. You won’t pay any stamp duty or capital gains tax, because you never own the underlying asset¹
• CFDs are exempt from stamp duty but you will pay capital gains tax on your profits. However, you can offset your losses against your profits for your capital gains tax liability, which makes CFDs useful for hedging¹

Choose from 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.

Our offering lets you trade over 80 currency pairs including:

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

These pairs are all available to trade on our award-winning trading platform and app when you create an account with us.²

Hedge with forex

Hedging is a technique that can be used to reduce the risk of unwanted moves in the forex market by opening multiple strategic positions. Although volatility is part of what makes forex so exciting, hedging can be a good way of mitigating or limiting your loss to a known amount.

There are a variety of strategies you can use to hedge forex, but one of the most common is hedging with correlated currencies. By opening opposing positions on forex pairs that are positively correlated – like GBP/USD and EUR/USD – you can limit your downside risk. For example, a loss on a short EUR/USD position could be mitigated by a long position on GBP/USD.

Alternatively, you could use forex to hedge against loss in other markets, such as commodities. As an example, USD/CAD generally has an inverse relationship with crude oil. So, a long USD/CAD position can be used as a hedge against falling oil prices.

Why trade forex instead of stocks?

Stocks are a popular market in their own right, and many traders will choose the perceived stability of the stock market over the heightened volatility in forex. That said, there are a number of reasons why some people choose forex trading over share trading:

• Market opening hours: the stock market is limited to an exchange’s opening hours, whereas the forex market is open 24-hours a day. But, it is worth noting that certain stock indices are available for weekend trading
• Higher liquidity: the forex market sees an average daily turnover of $6 trillion, whereas the stock market sees comparatively fewer traders per day
• Greater volatility: the stock market tends to have more stable prices that change over a longer period of time. Although this is great for long-term trading styles, the volatility of the forex market can create an exciting range of opportunities for short-term traders