Why Trade Forex?
The forex market offers the day trader the ability to speculate on movements in foreign exchange markets and particular economies or regions. Furthermore, with no central market, forex offers trading opportunities around the clock.
- Liquidity – In the forex market there is an average volume of over $3.2 trillion dollars traded per day. So, there is an abundance of trades and moves you can make.
- Diversity – Firstly, you have the pairs stemming from the eight major global currencies. On top of that, many regional currency pairings are also available for trade. More options, more opportunities to turn a profit.
- Accessibility – The forex market is readily accessible, open twenty-four hours a day, five days a week. As a result, you decide when to trade and how to trade.
- Leverage – A significant amount of forex currency pairings are traded on margin. This is because leverage can be used to help you both buy and sell large quantities of currency. The greater the quantity, the greater the potential profit – or loss.
- Low commissions – Forex offer relatively low costs and fees compared to other markets. In fact, some firms don’t charge any commission at all, you pay just the bid/to ask spreads. True ECN firms may also offer 0 spread!
Currencies Traded In Forex
In the international forex day trading world, the vast majority of people focus on the seven most liquid currency pairs on earth, which are firstly the four ‘majors’:
- EUR/USD (euro/dollar)
- USD/JPY (dollar/Japanese yen)
- GBP/USD (British pound/dollar)
- USD/CHF (dollar/Swiss franc)
In addition, there are three emerging pairs:
- AUD/USD (Australian dollar/dollar)
- USD/CAD (dollar/Canadian dollar)
- NZD/USD (New Zealand dollar/dollar)
These currency pairs, in addition to a variety of other combinations, account for over 95% of all speculative trading in the forex market. However, you will probably have noticed the US dollar is prevalent in the major currency pairings. This is because it’s the world’s leading reserve currency, playing a part in approximately 88% of currency trades.
If a currency pairing doesn’t include the US dollar, it’s known as a ‘minor currency pair’ or a ‘cross-currency pair’. Hence the most popularly traded minor currency pairs include the British pound, Euro, or Japanese yen, such as:
- EUR/GBP (euro/British pound)
- EUR/AUD (euro/Australian dollar)
- GBP/JPY (British pound/Japanese yen)
- CHF/JPY (Swiss franc/Japanese yen)
You can also delve into the trade of exotic currencies such as the Thai Baht and Norwegian or Swedish krone. However, these exotic extras bring with them a greater degree of risk and volatility.
Finding The Best Forex Broker
The “best” forex broker will often be a matter of individual preference. It may come down to the pairs you need to trade, the platform, trading using spot markets or per point or simple ease of use requirements.
Below is a list of comparison factors, some will be more important to you than others but all are worth considering. Details on all these elements for each brand can be found in the individual reviews.
Lowest Trading Costs
Spreads, commission, overnight fees – everything that reduces your profit on a single trade needs to be considered. High-frequency trading means these costs can ratchet up quickly, so comparing fees will be a huge part of your broker choice. Inactivity or withdrawal fees are also noteworthy as they can be another drain on your balance.
The trading platform needs to suit you. Whether you want a simple cut down interface or multiple built-in features, widgets, and tools – your best option may not be the same as someone else’s.
Demo accounts are a great way to try out multiple platforms and see which works best for you. Remember also, that many platforms are configurable, so you are not stuck with a default view.