For those of you new to forex or exploring trading options, you will find that forex trading offers much more leverage and opportunity than options trading.
What we are going to discuss applies purely to speculative trading. If you are hedging a stock position or commodity contract with an underlying option contract, you will have few alternatives other than the option to hedge.
However, if you are considering options trading from purely a speculative trading aspect, then the Forex markets may help you reach your speculative goals more efficiently and effectively.
Here are several key factors and reasons why Forex trading is the largest sector of financial trading in the world.
1. Forex is a true 24/5 market. From the Asian open to the European close all the way to the USA open and close, forex trades virtually 24 hours a day 5 days a week. Compare this to the stock and futures markets which do have global counterparts, however, most of the action is limited to each countries and each markets trading hours. With is this global liquidity you can pretty much initiate and close trades effectively almost at any time around the clock.
2. Massive Liquidity. There are only a handful of currency pairs that offer huge liquidity, such as the EUR/US and US/JPY and other major currency pairs. Of these currency pairs, they are traded around the world by trading firms, banks, corporations, hedgers and speculators.
3. Huge Leverage. Most retail forex brokers offer 100:1 to 200:1 leverage. Some offer even more. What this means is that you can control a $100,000 currency contract for as little as $1000 or even $500. What this means is that if you trade just 10 standard size currency lots, you can usually control a million dollars worth of currency for about ten thousand dollars. What does this equate to in dollars trading? If you traded 10 standard lots of EUR/USD a one pip move is worth $100 up or down to you. The EUR/USD occasionally has moves of over 200 pips and more in a day which means $20,000 of opportunity for $10,000. This explains why more fortunes are accumulated (and also lost) in the Forex markets, much more so than the stock options or commodity options markets.
4. Automated Trading. Forex trading offers a slew of automated trading options and 99% of the trading and analysis software available are offered completely free by most of the forex brokers. For example a popular charting and trading software being used by many retail forex traders is Metatrader. Metatrader not only has a plethora of charting and technical analysis tools, it also allows you the ability to create what are called “expert advisors” or EAs which are simply automated custom programmed indicators, charting tools and automated trading routines which can enter and close trades and manage position sizes automatically based on any parameters you program. Metatrader can also run pre packaged off the shelf EAs that are sold by others.
5. The Forex market is hardly affected by weather or corporate management or misconduct or earnings reports, but is moved by geo political factors and economic reports of governments. Many of these reports are regular monthly and quarterly reports released at the same scheduled time by government entities.
6. The Forex market continues to get bigger every year. In time, because of the nature of accessible information online, forex trading will become as ubiquitous as stock trading.
7. The ability to start small. Many forex brokers offer mini accounts. Some offer micro accounts with smaller contract sizes that allow new traders and smaller traders to participate with less overall finacial risk.
8. The ability to trade leveraged positions, just like the futures markets and stock trading on margin.
9. The ability to trade via automated signals automatically without lifting a key on the computer or without touching the phone. Similar to a managed forex account but without the commitment or management fees… A new trend in forex trading is “automated forex trading”. You can do it yourself if you have a system and programming knowledge or if you buy a program and do it all through Metatrader. Or you can subscribe to a free service such as ZuluTrade and pick your own forex signal providers and have all of their trades routed to your account. With Zulu Trade you and choose who to trade through at anytime. You have complete control of your account and simply choose the best performing traders and allow ZuluTrade to route thier trades to your account. You pay no extra fees for this. Zulu makes money from a spread rebate though the broker you select, and you make money when your chosen provider successfully trades. The nice thing about ZuluTrade is that you can see and analyze each signal providers past performance before you choose to autotrade with them.
10. A universe of trading information. The world of forex trading has a virtually unlimited amount of information and resources, most of it is free and since the trading community is global you can access information from people all over the world who are trading the same currencies as you are. Once such community is at ForexFactory.
