Online trading offers more opportunities for the average investor than most other popular methods. There are several advantages to Forex trading. Because of the large number of assets that are available, combined with the ability to trade using leverage, people can place orders for a relative low sum, and easily see returns of 10 percent or more.
However, the high level of volatility means that investors must carefully manage risk to keep track of profits and losses. Otherwise, gains could slip away during market direction reversals.
The primary benefit of trading on foreign exchange circuit is that you can diversify your portfolio within seconds just by placing new trades. With other types of assets, you can only choose one specific instrument to trade at a time. This makes balancing your portfolio complicated, because you have to juggle multiple accounts for everything you trade, often with each login resulting in a separate user fee.
However, with FX, you can place a BUY order on EUR/USD, and then within a few seconds, place another BUY order on USD/JPY. In fact, you can even hedge your risk by placing a BUY and a SELL order for the same pair simultaneously.
In addition to giving lots of choices for ways to make money, currency trading can be done from almost anywhere with little to no interference from a third party such as is required when trading traditional stocks or commodities. These intermediaries often charge a commission for providing a service.
All that is needed to work in Forex is a computing device, such as a desktop, laptop, tablet, or mobile phone, along with a stable internet connection. This lowers the costs of participating in the FX market when compared to putting your money in an account with a bank.
The volatility of the currency market can work in a trader’s favor. Because much of the news that drives prices is related to publicly available government issued reports, it is relatively common for large movements to occur in regular cycles.
These price differentials can lead to returns that are far greater than anything available in more traditional venues, and are generally easier to predict through the use of both fundamental and technical indicators. The high level of transparency is especially well-suited to the needs of new traders, who often have less access to the kinds of specialized information that is useful when working with stocks, indices, or commodities.
On the other hand, FX instability is a constant concern, because when the direction of a pair changes, the price reversal can seem nearly instantaneous. The simplest way to reduce risk when trading pairs is to set appropriate limits for when to open and close orders. These are referred to as Stop Loss and Take Profit orders. With a Stop Loss, trades are closed automatically when they hit a certain price or generate a specific level of loss.
With Take Profit orders, you close trades once they created a preset level of profit. Both of these options remove much of the emotional component of trading which is the biggest drain on consistent profitability.
Investors can profit from Forex price movements if they are careful in choosing a diverse portfolio. Low fees and a wide range of assets provide an environment which encourages success.