In-depth Analysis

Why is the Forex market so popular?

What is the Forex market?

The Forex, which stands for Foreign Exchange, is the market where currencies can be bought, sold, and traded. It is the largest and most liquid market in the world. Mostly made up of over-the-counter (OTC) transactions, the Forex market is one of the most popular markets for retail traders, let’s find out why in this article!

Why is the Forex market so popular for traders?

1)     Open 24h

Trading the Forex market isn’t done via a single central location, but thanks to various trading desks and sessions around the world. And because these markets are located in different parts of the world, when one region closes, another opens (or has already opened) to continue to provide opportunities for Forex traders.

There are different Forex trading sessions – the Sydney session, Tokyo session, London session, and New York session. The time difference between these time zones makes it possible for the Forex market to be open 24 hours a day, from 5 p.m. EST on Sunday until 4 p.m. EST on Friday.

Each market exchange involved in the Forex session focuses on its regions and the trading activity of the related currency pairs is always larger than with others. There is also an activity peak when sessions overlap, especially when the London/New York sessions are involved.

2)     Market liquidity

Market liquidity is a necessary condition for effective trading – and the Forex market is one of the most liquid markets in the world!

The capacity of a currency pair to be bought and sold without having a significant influence on its exchange rate is referred to as Forex liquidity. So, because the Forex market is a very liquid market, it enables for smooth transaction flow and more competitive pricing, where currency traders can trade trading volumes with little impact on the price.

According to the 2019 Triennial Central Bank Survey about the Foreign Exchange turnover from the BIS, transactions on the FX market reached $6.6 trillion per day, with the 4 most liquid currencies being the USD, the EUR, the JPY, and the GBP.

3)     Margin and leveraged trading

Retail traders can usually get access to leverage and margin trading when trading the Forex market, which means that they can trade larger trading volumes than what their balance equity would normally allow, thanks to borrowed money from your broker.

To open an FX trade with leverage, your broker will ask you for a certain amount of money, as a kind of “good faith deposit” or “collateral”, called margin. Usually expressed as a percentage of the total value of a position, the margin varies depending on your broker’s requirements, which mostly depends on the underlying currency pair.

To manage a $100,000 Forex position, for example, your broker may ask you to set aside a margin of $1,000 from your trading account, in which case you’re using 100:1 leverage.

4)     Short selling

By using derivatives in your Forex trading, you will be able to use both long and short trading strategies. Short-selling is a very powerful tool for traders looking to take advantage of all market conditions.

With short-selling, you will be able to short-sell currency pairs to take advantage of bearish market movements, which means that you can potentially make money while a currency pair is losing value.

The idea behind Forex short-selling is to virtually borrow a currency pair from your broker to sell it on the markets and buy it back at a lower price to return it to your Forex broker. The difference in value between the selling price and the buyback price will be your profit (from which you need to deduct trading fees).

5)     Trading styles

While the Forex market is very popular with active traders, using strategies such as scalping or day trading, medium to longer-term traders and investors (such as those using swing trading or position trading) can also find great opportunities in the FX market. Both technical analysis and fundamental analysis can also be used with the Forex market to spot good opportunities.

Technical analysts rely on price action, technical indicators, and price patterns (confirmation, reversal, and indecision) to determine when to open and close trades. Fundamental analysts dissect the influence of political, economic, as well as social variables on the relative value of a given currency to determine its intrinsic value and spot the best opportunities.

The Forex market is, therefore, a great market for all types of traders and investors, regardless of their way of analyzing the market!

6)     Easily accessible

Today, there are many different brokers available for trading the Forex market with just a few hundred dollars, pounds, or euros to start with. Because they provide margin and leverage trading, these Forex brokers offer a chance for traders with a small amount of capital to be able to start trading currencies.

In addition to the fact that you can start with relatively few trading funds, Forex transactions are done 100% online today, which means that you only need a robust device, such as a computer, a table, or a smartphone, and a reliable and stable Internet connection.

Modern technology has changed the trading world over the last decade, allowing more and more traders to easily access the financial markets with web-based platforms like ActivTrader.

To allow small traders to get into the Forex market, brokers also created smaller trading lots. While a standard Forex trading position is worth 100,000 units of the base currency, the mini lot only represents 10,000 units, and the micro lot 1,000 units.

What makes ActivTrades a great broker to trade the Forex market?

 

  • Regulated broker offering a secure trading environment with enhanced fund protection.
  • Offers fast and reliable trading execution with great liquidity solutions (no order re-quotes, low latency, deep liquidity, average order execution below 0.004 seconds, over 93.60% of orders are executed at the targeted price…).
  • Provides direct and fully automated trading execution (no dealing desk model).
  • Offers different trading platforms to choose from. It is possible to trade with the popular MetaTrader platforms (MT4 and MT5), which means that you can easily automate your Forex strategies. You can also use ActivTrades’ own web-based trading platform with TradingView integration and unique advanced features – ActivTrader.
  • Provides competitive trading conditions with tight spreads and no commission on about 50 currency pairs.
  • Wants to provide the best chances for its Forex traders to succeed with analysis, education, one to one training sessions, and smart trading tools.
  • Offers dedicated and professional support in 14 languages if you need help with your trading.

The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.

Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk