Q:

What are the benefits of foreign currency trading?

A:

Quick Answer

The availability of trades 24 hours a day, the low transaction cost, high liquidity and access to leverage are all advantages of entering the foreign currency exchange market, commonly known as the forex market. The fact that traders can benefit from prices that rise or fall is also attractive.

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Full Answer

During the business week, forex trades take place around the clock because at least one market is always open. However, liquidity is greater when markets in several different time zones are simultaneously open. The cost of a forex transaction is also extremely low. The price is generally the spread, or the gap between the bid and ask prices. Forex spreads tend to be much smaller than those in stocks and other securities. This makes over-the-counter forex trades more cost-effective than other trades.

The forex market has more liquidity than any other financial market. Each day, the trading activity frequently goes over $4 trillion. About $1.5 trillion of that is the result of spot trades, which are contracts to trade a set currency pair amount at an advertised price known as the spot trade. Because of the extreme levels of volatility within forex prices, traders who speculate correctly can bring in considerable profits. At the same time, they also expose themselves to significant levels of risk.

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