The foreign exchange market has unique characteristics that make it different from other trading markets. With high liquidity and volatility, and low barriers to entry and transaction costs chief among them, the buying, selling and exchanging of currencies offers traders a compelling opportunity to build a successful portfolio.
The forex market has several major financial centres in each of the three main regions – Europe, North America and Australasia. The overlap of trading times means the global market is open 24-hours a day but is closed at the weekend. There is a demand for forex trades around the clock due to the importance of currency on the international stage. In contrast, stocks and commodities are largely traded domestically, so demand doesn’t justify an “always open” system.
The open-ended nature of forex trading allows traders to dip in and out of the market when they see fit. This is different to trading in futures on regional exchanges where market players have to engage and be active during a comparatively smaller window during the day. Forex is better suited to part-time trading for this reason.
With an average $3.5tn being traded every day, the scale and scope of the forex market is unmatched. The abundance of players and number of trades results in a highly liquid market. That means huge volumes of currency pairs can be bought and sold without large variances in exchange rates. This lower volatility ensures stability as prices change in small increments compared to other markets.
Lower transaction costs
Forex is more transparent in terms of costs as traders can select the eToro Broker, for example, and have access to trading tools and market data without the need to pay any commission. This cost-efficiency sets it apart from other markets where fees often need to be paid alongside the spread amount.
Forex trading is arguably the most accessible market for beginners as users can often open an account with just £50 or £100 and start making trades immediately. This is because brokers offer higher amounts of leverage, which allows traders to make transactions that are considerably larger than the margin in their accounts. This contrasts to markets where a significant upfront investment is required to start trading. Higher leverage does bring greater risks, so traders need the right strategies to be successful.
Tech lays the foundation for all trading markets but recent advances and increased competition have opened the market up to newcomers and experts alike. For example, traders can now use automation for stop-loss orders and access a variety of technical analysis indicators within a single, easy to use hub.
Forex also differentiates itself through the comparatively small selection of currency pairs, which can be beneficial for beginners looking to trade for the long term. There are 630,000 companies now trading publicly on the stock market, which makes keeping track of potential target stocks more time-consuming. With forex, you can just concentrate on one or two major currency pairs to begin with and work from there.