FOREX stands for Foreign Exchange market. Often it is also called "Forex", "FX", "Spot FX", and "Spot". Simply put, Forex Trading is the buying of one currency and selling of another simultaneously. The profits and losses in Forex trading are dependent on the fluctuations in the exchange rate between the currency pair.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.
There are many advantages to trading Forex. This is the list of the main Forex advantages:
Opportunity to make money irrespective of business cycle. Currency pairs always move upwards and downwards relative to each other. In either case, there is a constant possibility to make money.
No commissions (no clearing fees, no exchange fees, no government fees, no brokerage fees because the brokers are compensated for their services through the bid-ask spread)
No middlemen. Forex spot market eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a given currency pair.
Huge trading volume (about $2 trillion a day)
Low minimal investments because of the low margin and resulting in a high leverages (this increases both - the potential profits and losses). In Forex trading, a small margin deposit will allow a much greater total value of the contract. This means that you do not have to pay the full value of the currency. For example, some Forex brokers offer 100 to 1 leverage. That way a $100 margin deposit would allow to buy or sell $10,000 worth of currencies and so on. But without appropriate risk management this can lead to large losses as well as profits.
In case of the margin basis investors are obligated to lodge capital as security (initial margins) and to cover all net debit adverse market movement (variation margins). When clients loss reaches an extent where they no longer meet the margin requirements they are required to "top up" their accounts or to "close out" their position.
Very high liquidity (With a typical trading volume of more than $2 trillion per day, Forex is the most liquid market on the planet)
Geographically decentralized over-the-counter (OTC) market. The Forex spot market considerably differs from other markets as it has neither a physical location nor a central exchange. It operates electronically through networks of banks, corporations, and people trading currencies.
24 hours a day market (Closed on weekends). This is important for those who want to trade on a part-time basis, because you can choose the time when to trade.
No Fixed lot size: In the futures markets, lot or contract sizes are determined by the exchanges. In spot markets you determine your lot size. This allows traders to successfully participate with accounts less than $1,000.00.
Small transaction cost: The retail transaction fee (the bid/ask spread) is as a rule less than 0.1 percent under regular market situations. At larger dealers, the spread could be as low as 0.07 percent. Certainly this depends on the leverage.
Instant transactions due to the high liquidity.
Online access (Internet trading platforms).
Nobody can corner or "force" the Forex: The Forex trading market is so colossal and has countless participants that no unique participant, not even a powerful central bank, can have power over the market price for an extended period of time.
No insider trading: Because of the size of the Forex trading market and non-centralized environment, there is practically no chance for any insider trading.
Limited regulation: There is limited governmental regulation in the Forex trading, basically because there is no central location or exchange. However, this may be a two-edged sword.
Free "demo" accounts (99% of online Forex brokers offer 'demo' accounts to practice trading), free charts and diagrams, news, and analysis. These are very valuable resources for "poor" and SMART traders who would like to try their trading skills before risking real money.
"Mini" and "Micro" Forex Trading: You would think that getting started as a currency trader is very costly. In fact, it isn't. You can find an online Forex broker that offers an account with a minimum deposit of a hundred bucks. It does not mean that you should open an account with the minimum deposit but it does makes Forex much more accessible to the average person.
This is the most complete list of the Forex trading Advantages.
To also learn about the Forex trading Disadvantages please visit: /forex-trading-disadvantages.html
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