Category: Personal Finance

Why is Forex becoming so popular?

There are many benefits and advantages of trading forex. Here are just a few reasons why so many people are choosing this market:

No commissions
No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail brokers are compensated for their services through something called the bid/ask spread.

No middlemen
Spot currency trading eliminates the middlemen and allows you to trade directly with the market responsible for the pricing on a particular currency pair.

No fixed lot size
In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5,000 ounces. In spot forex, you determine your own lot, or position size. This allows traders to participate with accounts as small as $25 (although we’ll explain later why a $25 account is a bad idea).

Low transaction costs
The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market conditions. At larger dealers, the spread could be as low as 0.07%. Of course this depends on your leverage and all will be explained later.

A 24-hour market
There is no waiting for the opening bell. From the Monday morning opening in Australia to the afternoon close in New York, the forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade: morning, noon, night, during breakfast, or in your sleep.

No one can corner the market
The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank or the mighty Chuck Norris himself) can control the market price for an extended period of time.

Leverage
In forex trading, a small deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum.

Let’s take as an example, this Australian Forex broker, which offers different leverage, we will consider the 50-to-1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade with $25,000 dollars and so on. While this is all gravy, let’s remember that leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

High Liquidity
Because the forex market is so enormous, it is also extremely liquid. This is an advantage because it means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will as there will usually be someone in the market willing to take the other side of your trade. You are never “stuck” in a trade. You can even set your online trading platform to automatically close your position once your desired profit level (a limit order) has been reached, and/or close a trade if a trade is going against you (a stop loss order).

 

Low Barriers to Entry
You would think that getting started as a currency trader would cost a ton of money. The fact is, when compared to trading stocks, options or futures, it doesn’t. Online forex brokers offer “mini” and “micro” trading accounts, some with a minimum account deposit of $25.

We’re not saying you should open an account with the bare minimum, but it does make forex trading much more accessible to the average individual who doesn’t have a lot of start-up trading capital.

Free Stuff Everywhere
Most online forex brokers offer “demo” accounts to practice trading and build your skills, along with real-time forex news and charting services.

And guess what? They’re all free!

Demo accounts are very valuable resources for those who are “financially hampered” and would like to hone their trading skills with “play money” before opening a live trading account and risking real money.

Now that you know the advantages of the forex market, see how it compares with the stock market!

Taking Bold Financial Risks While You’re Young

A lot of middle-aged and older people wish they took more financial risks while they were in their 20’s and early 30’s. This is because they believe it is smarter and easier to make bold financial risks at a young age. On the other hand, younger people are waiting to get older before they start making such decisions. So what is the right time to begin? The answer to this question is simple. You should start taking bold financial risks while you’re young. Below are some good reasons why.  Here is a video that explains risk and investing.

Few Responsibilities

One of the reasons why you should start taking bold financial risks at a young age is the fact that you don’t have a lot of responsibilities. When you are fresh out of school or living with parents, you don’t have children and you don’t necessarily have any bills to take care of, this is the perfect time to take financial risks. You can afford to take the financial hit if things go wrong, you still have years to save until retirement.

It’s Easier to Fail When You’re Young

The other reason why people should start making bold financial choices early in life is the fact that it is easy to fail when you are still young; easy in the sense that you can take and deal with the failure easier than an older person can. This is mainly because your age permits you to make many mistakes which enable you to learn. When you are older, no one expects you to make such mistakes and you are honestly better off not making mistakes because a lot of people depend on you.

Future Safety Net

The reason why a lot of middle-aged and older people struggle with their finances is because they did not have the foresight to start early. When you continuously take bold informed financial decisions, they end up working out and generating a lot of profits. These profits can be reinvested and saved for the future.  This means your retirement is better funded and if you have children who want to attend university you can afford to send them.

In conclusion, if you are a young person and you are reluctant about taking any financial risks, you needn’t be.  Having a bold financial plan doesn’t mean heading to Vegas and betting it all on black, but you can choose riskier stocks and trades.  Speak with your financial adviser about the right types of risk that you can take.  Your future self who is ready to retire will thank you for it.