1. ABILITY TO GO LONG OR GO SHORT
While you can go short on other markets by using derivative products, short selling is an inherent part of trading forex. This is because you are always 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.
For example, in the forex pair GBP/EUR, 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 will depend on the extent to which you get your prediction right, meaning it is possible to profit and lose whichever way the market moves.
2. FOREX MARKET HOURS
The foreign exchange (FX) market is open 24 hours a day, five days a week—from 5pm EST Sunday to 4pm EST Friday.
These long hours are because forex transactions are completed between parties directly, over-the-counter (OTC), rather than through a central exchange. As forex is a truly global market, you can always take advantage of different active session’s forex trading hours.
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.
It is 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.
DOES FOREX TRADE ON WEEKENDS?
The forex market closes on Friday afternoon at 4pm EST and does not open again until 5pm EST on Sunday afternoon. However, because the market is only closed to retail traders (not central banks and related organizations), forex trading actually does take place over the weekend. This means that there can be a difference in price between Friday close and Sunday open—known as a gap.
Traders need to be highly aware of the weekend forex trading hours and alter their positions accordingly. If you do not want to expose your position to the risk of gapping, you may want to consider closing your position on Friday evening or placing stop-losses and take-profits to manage this risk.
3. HIGH LIQUIDITY IN FOREX
The forex market witnesses some of the greatest daily volume of any asset in the world. High trading volumes can often mean high liquidity for everyday people entering and exiting the market, as high liquidity usually reflects tighter spreads and thus lower costs to trade.
The graph depicts the volume of the greater foreign exchange marketplace; however, tastyfx LLC is the counterparty to the FX transactions of its client base and therefore serves as the liquidity provider.1
Sources: Bank for International Settlements Triennial Central Bank Survey (2022) and World Bank (2022).
4. VOLATILITY CREATES TRADING OPPORTUNITY
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. You 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
With tastyfx, trading foreign exchange pairs is 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 trade on EUR/USD 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 losses, meaning losses could exceed your initial deposit. For this reason, it’s important to consider the total value of the leveraged forex position before trading.
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.
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
7. 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 loss or limiting it 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 multiple currency pairs. By choosing forex pairs that are positively correlated, such as GBP/USD and EUR/USD, but taking positions in opposite directions, 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.
Correlations can change causing risk of significant losses in hedged positions. Also, it should be noted that hedging does not take risk completely out of trading as you still have open positions in the market.
8. ACCESS TOOLS TO HELP YOU TRADE
tastyfx 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. You can get access to a range of features designed to help improve your trading, including risk management tools—like stops and limits—as well as interactive charts and integrated news feeds. Publication date:
2024-07-22 23:30:18 (GMT)
