Anyone looking to make some extra money on the side through investments has a number of options available to them. Many people will automatically start scouring the stock market and related news, looking for the company that is going to make them millions. This can be a complex market to enter and present many obstacles for beginners.
In many ways trading forex is a far more attractive option, not just for new starters but even the experienced investors. From the ETF to the futures market, there is plenty of choice out there regarding which market to trade on. Knowing the advantages and advice for trading forex will help you capitalise on the possibilities it provides.
Stocks from almost 3,000 companies are available to exchange on the world’s largest stock exchange, the New York Stock Exchange. Around 1.5 billion shares are traded each day, without including those made on the London Stock Exchange and many other ones.
While the forex market does include many different currencies and even more potential pairs to exchange, there are only eight major currencies with six to eight popular pairs traded. This makes it a much easier market to follow, keep up to date with and spot opportunities to make a profit. It is still advisable to start with one currency pair and work your way up as your confidence increases. Read more about making your first forex trades.
Lower Cost = Lower Risk
Using a forex broker will help you make more informed decisions in the early stages. One big advantage is that they charge no commission or additional fees as they receive compensation for such services through the bid/ask spread. Choose a broker wisely though and thoroughly inspect the trading platform you will be using and that it all fits in with your expertise level.
This is different to stock brokers who, whether working independently or as part of a larger firm, charge higher percentages. What they charge for holding and trading your shares can vary a lot but taking control of it all yourself can take up a lot of time and lead to increased losses when you’re in unfamiliar territory.
Currency is in constant use around the world due to our different time zones. This also means that the forex market is open 24/7 as the four major trading sessions all open and close at different times. This starts when the Sydney session opens at 10pm (GMT) until over 24 hours later when the New York session closes at 12pm (GMT).
This creates busier and quieter times for trading when the values are more likely to increase or decrease. The European session, based in London, usually provides the most movement and therefore chances to capitalise. The stock markets also overlap in opening and closing times with the action occurring in the Asian markets during the morning having a profound effect upon the European and American markets later in the day. However, the stock markets don’t allow 24 hour trading with brokers closing at the end of the day.
Partly due to the tight bid/ask spreads involved in exchanging currencies it can require large investments to make a significant profit (or loss). For this reason leveraging within forex trading provides traders with the funds to make larger profit and losses.
The capital is lent when you open the trade but doesn’t go directly into your account. Instead you see the increased value attached to each pip movement, either positive or negative. Other markets don’t offer this element and it can be useful to take advantage of if you meet the margin requirements with your broker. These differences can make trading forex a highly attractive option to many.