In this article, our aim will be to look at two things, first how foreign exchange trading is better than other forms of investment, and the second will be how demo accounts are useful for investors.
Difference between Forex and other Investments
There are several advantages of trading in the foreign exchange market over other types of investments. The following sections will look at some of an investor's main benefits.
Low Margin Trading
In forex trading, a trader can utilize significant funds by comparatively small capital investment using a technique called margins. For example, if there is a margin of 100:1, you can use $100,000 in forex trading by depositing $1000. On the other hand, you need to keep in mind the margin call also according to which your position can be liquidated if the margin level drops beyond the defined level. To avoid facing such a situation, you will have to oversee the open positions and utilize stop loss to minimize risks.
No Fees or Commission
Normally, a forex broker does not charge you a fee for any sale or purchase order, but you will generally find the difference in prices between selling and buying rates called spread. This spread is about 2-3 forex pips for most common currency pairs which are traded in the market.
Foreign exchange markets remain open through different trading sessions, and these different sessions run sequentially in New York, Asia, Europe, and other trading zones, allowing you to trade the whole day. To give you a better idea, forex trading begins Sunday evening in the Asian market and closes when the New York market finishes trading on Friday evening.
Foreign exchange market provides high liquidity to traders, and no central bank can alter currency value, thereby giving an equal playing field to everyone. In comparison to stock markets, the information is available to everyone to use the same information is accessible by large banks and small investors, making it a totally open market.
Forex trading provides investors with many different methods to reduce their exposure to losses, and some of the primary methods used are Stop Loss and Guaranteed Stops. Combining these methods with risk analysis tools can be the most effective way of safeguarding your position in the market.
Forex Demo Accounts
The next topic we will look into here is forex demo accounts to give you an idea of how the market works without investing anything. Such demo accounts are quite useful for new investors to gain experience on how the market works and use such knowledge in live trading.
By using a demo account, you can learn to execute trades, participate in a trade and close the trade when required.
However, there are some negative points if you use demo accounts, such as less pressure than live trading, and it may also result in a false sense of confidence in trading.
To conclude, we can say that the foreign exchange market gives investors a lot of opportunities but what is important is improving your knowledge by using demo accounts before actually trading using a live account.