Why do people trade currencies?
There are countless options available to new traders who want to earn a passive income and put their savings to work.
People can buy and sell stocks, bonds, mutual funds, and other commodities.
Many new traders, however, are drawn to buying and selling currencies on the foreign exchange market. Using platforms such as OANDA, they can engage in forex trading almost 24 hours a day, seven days a week.
Below is an explanation of why forex trading is so popular, and whether it is worthwhile for a new investor.
Easy to Access
A complaint that has long stood against the stock market is that entry into stocks is not easy. There are several barriers, such as having to create a brokerage account and then needing a lot of money to buy shares in more popular companies.
Forex, on the other hand, has very low costs and barriers to entry. You can sign up for an account at a forex trading platform within minutes. Then you add money to your account, watch a video about how the platform works, and you can start trading within minutes.
As you can buy currency pairs in any quantity, you do not need to invest significant sums to make money on the forex market. More money does mean you can increase the gross gains on each trade, but even investing smaller sums can yield solid profits.
The forex market opens in Asia on Monday morning and runs until the American markets close on Friday. That means you are able to trade forex 24 hours a day, roughly six days a week. Such trading periods mean that you can fit in 30 minutes to an hour of trading most days, even if you have a busy schedule.
Having so many opportunities to trade is helpful for newer investors, as they are generally less patient. You can make a trade, watch as its value rises or falls, and sell your position within 30 minutes or an hour. Then you can engage in another trade.
Buying and selling stocks is a more stable process, especially if you only have a few thousand dollars in savings. You buy a few stocks, watch as they change in value over several days, and then decide whether to sell or hold your position.
Traders find the idea of having access to leverage very appealing, as they can make trades with a value that is greater than what lies in their forex account. If you have $100 in your forex account, and the platform offers leverage, you could trade a currency pair up to $1,000 through margin.
People who are new to the forex market should be careful when they use leverage and margin for their trades. The idea of investing more money than you have is tempting, as you can gain higher sums on each trade. The downside is that you can also lose more, which is why you must only use leverage after several months of forex trading experience.
Another way to avoid taking unnecessary risks within the forex market is to put in a stop-loss position when you are trading on margin. A stop-loss position means that if your chosen currency pair goes down in value by a specific percentage, you automatically sell your position to limit your losses.
Use of Real-World Knowledge
The stock market does suffer ups and downs as a result of real-world events, but forex arguably is even more impacted by what happens around our planet. When there is a significant political event, currency pairs will drastically change in value.
People who pay a lot of attention to world politics, and events may find the forex market extremely rewarding. Understanding how specific events impact the currency value of a country can help you formulate future trades to take advantage of forex market volatility.
While trading stocks requires in-depth market and finance knowledge, a basic understanding of trading along with real-world insight is usually enough to successfully trade forex.
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