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Forex advantages |
There are some Forex market advantages:
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(i.e. an opportunity of reception under the transaction of money, instead of the goods). The market on which money are assets, have highest of all possible liquidities. This circumstance is powerful attractive force for any investor since it provides to him freedom to open and close a position of any volume. The FOREX market with an average trading volume of over $1.9 trillion per day is the most liquid market in the world. That means that a trader can enter or exit the market at will in almost any market condition minimal execution barriers or risk and no daily trading limit. |
| Efficiency (a 24-hour market) |
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The main advantage of the Forex market over the stock market and other exchange-traded instruments is that the Forex market is a true 24-hour market. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading Forex so that investors can respond to breaking news immediately. In the currency markets, your portfolio won't be affected by after hours earning reports or analyst conference calls.
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Forex market traditionally has minimum commission charges, except for a natural market difference (spread) between the prices of a supply and demand. The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be less than 5 pips, and may widen considerably in fast moving markets.
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Because of high liquidity of the market the sale of practically unlimited lot can be executed on a uniform market price. It allows to avoid a problem of the instability, existing in futures and other share investments where during one time and for a determined price can be sold only the limited quantity of contracts.
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The size of credit "shoulder" ( margin ) in Forex market is defined only by the agreement between the client and that bank or broker firm which provides to him an output on the market. On Forex market the traditional size of "shoulder" 1:100, i.e., having brought the mortgage in 1000 dollars, the client can make transactions for the sum, equivalent 100 thousand dollars. Of course, this makes trading in the cash/spot forex market a double-edged sword the high leverage makes the risk of the down side loss much greater in the same way that it makes the profit potential on the upside much more attractive. |
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A trade in the FOREX market involves selling or buying one currency against another. Thus, a bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and a trader profits by selling the currency against other currencies. In either case, there is always a bull market trading opportunity for a trader.
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The backbone of the FOREX market consists of a global network of dealers (mainly major commercial banks) that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The FOREX market operates in a manner similar to the way the NASDAQ market in the United States operates, and thus it is also referred to as an 'over the counter' or OTC market. |
| No one can corner the market |
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The FOREX market is so vast and has so many participants that no single entity, even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short-lived, and thus central banks are becoming less and less inclined to intervene to manipulate market prices.
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Limit of Guaranteed Risk. One of the big advantages which the investors enjoy on the Market is that of being able to operate with Limited Lliability. This wants to say that, of the total investment that they have on the market, only they put in risk a small part that, if it is produced of correct form, can be translated in abundant earnings. Thanks to this protective politics, no investor can lose any more money of the one that he possesses in his account, that is to say, he can never have a negative balance. |
| Profit potential in both rising and falling markets |
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In every open FX position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling FX market. The ability to sell currencies without any limitations is one distinct advantage over equity trading.
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