Foreign Exchange (Forex) trading is a highly liquid type of trading that’s attractive to a wider range of investor types, from new traders to large corporate institutions. It involves the buying and selling of currency pairs across the worldwide trading markets, with the core objective of generating revenue and income.

When you trade forex, you take a position speculating on the price fluctuation on two currencies. Because of this, forex is always traded in pairs, for example GBP (£) and USD ($).

If you’re not sure why you should trade forex or are considering participating, this article is a good starting point. We’ll help you understand the different risks and benefits of forex trading and draw comparisons to other investment opportunities on the global marketplace.

Why should you trade forex?

There’s myriad reasons why you should trade forex. It’s a unique practice in that it’s accessible to all types of traders, with different financial circumstances. So, it’s user friendly and accessible at practically to everyone.

Before you decide to proceed, there’s a wealth of digital information available to people who are curious about the benefits of forex trading. Sites like Investopedia are a great starting point to begin your journey to success with forex. Be sure to reach out to successful traders for advice and recommendations too.

Why should you trade forex?

So now you understand why you should trade forex, now let’s take a more detailed look at the benefits of forex trading. Some key benefits include:

• Access to global markets, 24 hours a day
• Low entry points for beginners
• The ability to use leverage

Access to dynamic global markets, any time you want to trade

Forex trading is a fast moving, dynamic global trading practice. It happens all over the world, across major financial centres from London and New York to Hong Kong and Tokyo. Traders are rarely without access to foreign exchange marketplaces, so they’re able to trade any time they want. This allows them to follow the sun to trade in different time zones 24 hours a day, with just a short window of closure at the weekend.

Over $5.1 trillion is traded on the forex marketplace daily. The types of investors you’ll find trading forex include large corporate entities and instructional investors like banks, corporations and Governments. You’ll also find individual investors – often called retail investors – trading to earn a regular income or a second income revenue stream.

Access through low entry points

One of the reasons that forex is so popular with casual traders, is that you can begin trading with limited capital and tentatively build a portfolio.

In recent years there’s been a massive spike in casual investors who are generating a second income or participating as a side-line or pastime. This is made possible by the low point of entry financially, and the ease and accessibility. These features make forex highly attractive and are some of the main benefits of forex trading.

The benefits of using leverage in forex trading

The use of leverage in forex trading is a huge draw and one of the main benefits of forex trading. Using leverage – or margin trading opens investors up to larger opportunities without the need for a rich cashflow or meaningful cashflow.

Be sure to check your broker’s interest rates and fees before proceeding with margin trading, and make sure you’re comfortable that access to bigger opportunity also exposes you to bigger losses.

Liquidity in forex

Another of the benefits of trading forex is that the assets are highly liquid. In fact, forex is one of the most liquid global assets, thanks to the high worldwide trading volume and round the clock trading capacity.

The liquidity in forex means that the currency pairs can be bought and sold without any major devaluation of their exchange rates as a result. The currency pairs can also be bought or sold with easel, particularly the more common currency pairs. This high liquidity is a key driver of profitability, competitiveness and ease of transactions.

Risks of forex trading

Trading forex isn’t without its risks. When you speculate on the behaviours of your currency pairs, you may get your position wrong and lose on your bid. Risk factors increase when liquidity decreases, for example when choosing more exotic currency pairs. However, with higher risk comes the opportunity of higher reward.

Some of the major risks when trading forex include:

• Interest Rate Risk: Interest rate risk relates to profit and losses generated by shifts in forward spreads. Reduce risks by setting limits on the total size of interest rate, as well as forward amount maturity gaps in transactions in the forex book.
• Marginal or Leverage Risk: The higher the amount of leverage you use on your capital, the higher your risk level for loss could become. Exercise risk to reward ratios and risk management strategies to protect your profits.
• Transactional Risk: Traders can be exposed to transaction risk due to fluctuations in exchange rates post-completion but prior to trade settlement.
• Risk of Ruin: This calculates the chances that a forex trader will lose a percentage of their capital and be unable to continue trading.

With a strategic approach however, the benefits of trading forex far outweigh the dangers of forex trading.

Get started with a no risk demo account

When you’re new to forex trading, it can be nerve-wracking using the trading platforms and spending your own cash. That’s why our free demo accounts allow you to get familiarise yourself with the platform and fast-moving data insights first with dummy funds. Get comfortable with your risk and reward appetite and learn how forex strategies and tools matter when you’re setting your limits.

When we simulate the live environment and allow you to control no-risk funds, it provides confidence and capability over time. So that when you’re ready to spend your own money, you are set up for success.