Forex trading involves risk. Losses can exceed deposits

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 seven of the biggest forex trading benefits:

Forex trading involves risk. Losses can exceed deposits

1. Ability to go long or go short

One of the advantages of trading forex is that 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 currency pair is how much one unit of the base currency is worth in the quote currency.

So in the example, EUR is the base currency and USD is the quote currency. If EUR/USD is trading at $1.124030, then one euro is worth 1.124030 dollars. If you think that the euro is going to increase against the dollar, you would buy the pair (going long). If you think that the euro will decrease in value against the dollar, 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 4pm Sunday to 5pm Friday EST. 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 March, April, October and November 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.

Average global daily trading volume

Source:
Forex: Bank for International Settlements Triennial Central Bank Survey (2016)
Stocks: calculated using data from the World Bank (2017)

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.

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5. Leverage can make your money go further

IG offers leveraged forex trading, which can make your money go further - although it's important to be aware that it also increases your risk. 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/USD might require a deposit worth 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 initial deposit. For this reason, it’s important to consider the total value of the position before you trade.

To help you manage your risk, IG offers a range of risk-management tools including stop losses, 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 you can choose from over 80 currency pairs, including:

  • Major currency pairs, such as: GBP/USD, EUR/USD, and USD/JPY
  • Minor pairs, such as: USD/ZAR, SGB/JPY, CAD/CHF
  • Emerging currency pairs, such as: USD/CNH, EUR/RUB and AUD/CNH
  • Exotic pairs, such as: 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 the MT4 platform.

We also provide a demo account to help you improve your forex trading. You get completely risk-free access to $10,000 in virtual funds, so you can try forex trading and our technology without committing any capital.

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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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