BENEFITS
- Low Commissions: Brokerage fees are very low as the market is highly
competitive.
- No Middlemen : Futures/Options currency trading does away with
the middleman and allows clients to interact directly on the exchange platform.
- Standardized Lot Size : In the futures markets, exchanges determine
lot or contract sizes which are fixed in nature. This allows traders to trade in
multiple lots.
- Low Transaction Cost : The retail transaction cost (the bid/ask
spread) is typically less than 0.1% under normal market conditions. In large deals,
the spread could be as low as 0.07%.
- High Liquidity : With an average trading volume of over $4 trillion
per day, Forex market has high liquidity. It means that a trader can enter or exit
the market at will in almost any market condition.
- Instant Transactions:This is a very advantageous by-product of
high liquidity.
- Low Margin, High Leverage: These factors increase the potential
for higher profits (and losses).
- Online Access: The big boom in Forex came with the advent of online
trading platforms.
- Interbank Market: The backbone of the Forex market consists of
a global network of dealers. They are mainly major commercial banks that communicate
and trade with one another and with their clients through electronic networks and
by telephone. There is no organized exchange to serve as a central location to facilitate
transactions the way the New York Stock Exchange serves the equity markets. The
Forex market operates in a manner similar to that of the NASDAQ market in the United
States. Thus, it is also referred to as an over-the counter (OTC) market.
- Self-regulatory: The Forex market is so vast and has so many participants
that no single entity, not even a Central Bank, can control the market price for
an extended period. Even interventions by mighty Central Banks are becoming increasingly
ineffectual and short-lived. Thus, Central Banks are becoming less and less inclined
to intervene and manipulate currency prices.
- No Insider Trading: Because of the Forex market's size and non-centralized
nature, there is virtually no chance for ill effects caused by insider trading.
Fraud possibilities, at least against the system as a whole, are significantly less
than in any other financial instruments.
- Limited Regulation: There is limited governmental influence via
regulation in the Forex markets, primarily because there is no centralized location
or exchange.
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