Why Forex??

why is FOREX so popular?

FOREX involves trading currencies of one country for another. FOREX is the largest and most significant business and financial market in the world!

FOREX trading is attractive because it offers unparalleled freedoms. A FOREX trader can live almost anywhere as long as he/she is within reach of the internet.

A FOREX trader can work from home or office, and in some cases, even trade while traveling!

A FOREX trader can usually choose his/her own hours to work since the global foreign exchange market is open 24 hours a day.

A FOREX trader avoids many common headaches associated with running a business because there is NO inventory, NO shipping, NO billing, NO collections, NO employees, NO commuting and NO dress code.

And finally, since FOREX traders can potentially earn a very high income, they enjoy the possibility of never working for someone else again!

• Retain 100% of your trading profits

• Benefit from superior liquidity

• Profit in both rising and falling markets

• Trade on your schedule, respond to market changes immediately

FOREX vs. Equities

If you are interested in trading currencies online, you will find that the FOREX market offers several advantages over equities trading.

Lower Transaction Costs

It is much more cost-efficient to trade FOREX in terms of both commissions and transaction fees. FOREX.com charges NO commissions* or fees whatsoever, while still offering traders access to all relevant market information and trading tools. In contrast, commissions for stock trades range from $7.95-$29.95 per trade with online discount brokers up to $100 or more per trade with full service brokers.

Another important point to consider is the width of the bid/ask spread. Regardless of deal size, FOREX dealing spreads are normally 3-4 pips (a pip is .0001 US cents) in the major currencies. In general, the width of the spread in a FOREX transaction is less than 1/10 that of a stock transaction, which could include a .125 (1/8) wide spread.

Trade on Your Schedule

FOREX is a true 24-hour market, which offers a major advantage over equities trading. Whether it's 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading foreign currencies. Traders can always respond to breaking news immediately, and P&L is not affected by after hours earning reports or analyst conference calls.

After hours trading for U.S. equities brings with it several limitations. ECN's (Electronic Communication Networks), also called matching systems, exist to bring together buyers and sellers - when possible. However, there is no guarantee that every trade will be executed, nor at a fair market price. Quite frequently, traders must wait until the market opens the following day in order to receive a tighter spread.

Superior Liquidity

With a daily trading volume that is 50x larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the FX markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Traders can almost always open or close a position at a fair market price.

Because of the lower trade volume, investors in the stock market are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.

100:1 Leverage

100:1 leverage is commonly available from online FX dealers, which substantially exceeds the common 2:1 margin offered by equity brokers. At 100:1, traders post $1000 margin for a $100,000 position, or 1%.

While certainly not for everyone, the substantial leverage available from online currency trading firms is a powerful, moneymaking tool. Rather than merely loading up on risk as many people incorrectly assume, leverage is essential in the FOREX market. This is because the average daily percentage move of a major currency is less than 1%, whereas a stock can easily have a 10% price move on any given day.

The most effective way to manage the risk associated with margined trading is to diligently follow a disciplined trading style that consistently utilizes stop and limit orders. Devise and adhere to a system where your controls kick in when emotion might otherwise take over.

Profit Potential In Both Rising And Falling Markets

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 market.

The ability to sell currencies without any limitations is another distinct advantage over equity trading. In the US equity markets, it is much more difficult to establish a short position due to the Zero Uptick rule, which prevents investors from shorting a stock unless the immediately preceding trade was equal to or lower than the price of the short sale.

FOREX vs. Futures

The global foreign exchange market is the largest, most active market in the world. Trading in the FOREX markets takes place nearly round the clock with $1.9 trillion changing hands every day. It is the main event.

The benefits of FOREX over currency futures trading are considerable. The dissimilarities between the two instruments range from philosophical realities such as the history of each, their target audience, and their relevance in the modern FOREX markets, to more tangible issues such as transactions fees, margin requirements, access to liquidity, ease of use and the technical and educational support offered by providers of each service. These differences are outlined below:

• More Volume = Better Liquidity. Daily currency futures volume on the CME is just over 2% of the volume seen every day in the FOREX markets. Incomparable liquidity is one of many advantages that FOREX markets hold over currency futures. Truth be told, this is old news. Any currency professional can tell you that cash has been king since the dawn of the modern currency markets in the early 1970's. The real news is that individual traders from every risk profile now have full access to the opportunities available in the FOREX markets.
• FOREX markets offer tighter bid to offer spreads than currency futures markets. By inverting the futures price to compare it to cash, you can readily see that in the USD/CHF example above, inverting the futures dealing price of .5894 - .5897 results in a cash price of 1.6958 - 1.6966, 8 pips vs. the 5-pip spread available in the cash markets.
• FOREX markets offer higher leverage and lower margin rates than those found in currency futures trading. When trading currency futures, traders have one margin rate for "day" trades and another for "overnight" positions. These margin rates can vary depending on transaction size. When trading cash markets, you have access to the same margin rates day and night. Of course, trading on margin magnifies both your profits AND your losses.
• FOREX markets utilize easily understood and universally used terms and price quotes. Currency futures quotes are inversions of the cash price. For example, if the cash price for USD/CHF is 1.7100/1.7105, the futures equivalent is .5894/ .5897; a methodology followed only in the confines of futures trading.
  
  Currency futures prices have the added complication of including a forward FOREX component that takes into account a time factor, interest rates and the interest differentials between various currencies. The FOREX markets require no such adjustments, mathematical manipulation or consideration for the interest rate component of futures contracts.
• FOREX trades executed through FOREX.com are commission free*. Currency futures have the added baggage of trading commissions, exchange fees and clearing fees. These fees can add up quickly and seriously eat into a trader's profits.

In contrast, currency futures are a small part of a much larger market; one that has undergone historical changes over the last decade.

• Currency futures contracts (called IMM contracts or international monetary market futures) were created at the Chicago Mercantile Exchange in 1972.
• These contracts were created for the market professionals, who at that time, accounted for 99% of the volume generated in the currency markets.
• While some intrepid individuals did speculate in currency futures, highly trained specialists dominated the pits.
• Rather than becoming a hub for global currency transactions, currency futures became more of a sideshow (relative to the cash markets) for hedgers and arbitragers on the prowl for small, momentary anomalies between cash and futures currency prices.
• In what appears to be a permanent rather than cyclical change, fewer and fewer of these arbitrage windows are opening these days. And, when they do, they are immediately slammed shut by a swarm of professional dealers.

These changes have significantly reduced the number of currency futures professionals, closed the window further on FOREX vs. futures arbitrage opportunities and so far, have paved the way to more orderly markets. And while a more level playing field is poison to the P&L of a currency futures trader, it's been the pathway out of the maze for individuals trading in the FOREX markets.

The Benefits of FOREX Trading

No Short Selling Restrictions
FOREX trading always involves buying one currency and selling another, so traders can easily trade in a rising or falling market. There is no Zero Uptick rule or any other restriction against shorting a currency.

At $1.9 Trillion Per Day, FOREX is the Largest, Most Liquid Market in the World
The sheer volume of FOREX facilitates price stability, with less slippage. What's more, almost 90% of all currency transactions involve the 7 major currency pairs. As a result, these currencies exhibit smooth trends and enjoy the tightest dealing spreads and highest level of liquidity.

Trade on Your Schedule; Respond to Changes in the Market Immediately
FOREX is a true 24-hour market, open continuously from 5:00pm ET on Sunday to 4:30 pm on Friday. With three distinct trading sessions in the US, Europe and Asia, you can trade on your own schedule and respond to breaking news immediately.

Keep 100% of Your Trading Profits
FOREX.com charges NO commissions or fees*, while still offering free access to real-time quotes, news, charts, research, and more. Also, dealing spreads as low as 3 pips (.0003) are available in currency trading. Even at a penny ($.01), the bid/ask on a stock trade is 30x wider, in addition to the brokerage commission.

Control Up to 200:1 Leverage With more buying power, you can increase your total return on investment with less cash outlay. For example, with $1,000 cash in a margin account that allows 200:1 leverage (.5%), you can control up to $200,000 in notional value. Of course, trading on margin magnifies both your profits and your losses.

Introduction to the FOREX Market

The Foreign Exchange market, also referred to as the "FOREX" or "FX" market is the largest financial market in the world, with a daily average turnover of US$1.9 trillion — 30 times larger than the combined volume of all U.S. equity markets.

"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).

There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.

For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

A true 24-hour market, FOREX trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.

The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.