Trading one currency for another is known as Forex trading and is the largest trading market. This is because there are plenty of reasons why people want to trade Forex. Some of them are highlighted below. These reasons can often be called the advantages of trading Forex.
· Ease of Entrance in the Market
The world of currency has huge potentials with large multinationals and banks trading large volumes every day. Yet, as a result of the 1980’s legislations, Forex trading is now open for small investors as well. Such is the ease of entry, that a person with an account with as little as $250 in it can now start trading Forex. This means that even if you don’t have a large amount of money, you can still make a great return on your investment.
Currently, short term capital gains are taxed at the current tax rate. The other long term investments on the other hand, are taxed at around 15%. It is clear that most traders want to pay as little as they can in taxes. In the Forex market though, there is no such time criteria for short and long term capital gains. Even if you have been trading for a minute or a month or a year, the first 40 percent of your profits is taxed at short term capital gain rate while the rest at long term capital gain rate.
· Size of the Market
Saying that the currency market right now is the largest market in the world is not an understatement. The market is head and shoulders above other trading markets since it experiences an annual turnover of $2 trillion daily. This means that if you are an investor, you can go in and come out at will, without having to fear the price leaping too far up or going too far down. Another advantage that stems from the size of the market is that it means it’s harder for a single group to try and manipulate the market.
· Definite Stops
Forex trading gives the trader an option to set a price when they would like to enter the market and a price on which they would exit the market. This is done through a stop loss order. This means you inform your broker to cease your trade if the price of the market ever drops below a certain level which could harm your profits.
· A Greater Leverage
This is something that attracts aggressive investors looking to make it big. Leverage means that you invest $1000 but get to control an amount as large as $100 000. So if your investment goes right, you can realize all the potential of $100 000. Yet, this can also go against you with the losses for the $100 000 also coming your way. Hence, this option needs to be handled with care.
On top of all that, there are professionals companies that can help you with your performance such as ETX Capital so that you can make the most of trading even if you are new. Forex Trading is one market that has huge potential. This means that people can trade if they want turn modest investments into large fortunes, yet it continues to be laden with risks.