Forex Trading

You can trade anytime, anywhere
The biggest market in the world
You can sell as well as buy
Instant execution with no commissions
Technical analysis works better
Fewer instruments to worry about
No inside information

There are lots of assets you could be trading: stocks, bonds, commodities, real estate…why should you trade forex? There are a number of advantages to this market that make it particularly attractive to traders.

YOU CAN TRADE ANY TIME, ANYWHERE

As I mentioned before, the market starts trading at 8 AM on Monday in New Zealand and keeps going until Friday afternoon in San Francisco. It’s like a horse race where the horses never stop running. So you can trade any time you want to, except on the weekends and the occasional global holiday, like New Year’s day.

Let’s say you wake up at 4 AM with a great investment idea. Or you’re out to dinner with a date and want to impress her. No problem! Go for it! Your broker is probably at work somewhere in the world. And as long as you have an internet connection, you can take out your phone and trade.

THE BIGGEST MARKET IN THE WORLD

The forex market is the biggest market in the world. Turnover averaged $7.5trn a day in April of 2022. That compares with around $560bn a day for all the stock markets in the world that year. So turnover in FX is about 13 times as much as turnover in stocks – and remember, there are far fewer currencies than there are stocks in the world (around 54,130!), so turnover in the major currencies is much, much higher than in any stock.

What that means is that it would be a really unusual day when a retail client couldn’t get a price or couldn’t trade. It has happened a few times when something extraordinary happens, but it’s pretty rare. Of course some times are better for some currencies than for others, but normally you can find a price and get in or out of a trade whenever you want at relatively narrow spreads.

The huge size of the market also means that it’s harder for any one participant to influence the market. Sometimes a big order will move the price, but it often comes back soon after. Not always, but often.

YOU CAN SELL AS WELL AS BUY

When you’re trading stocks, it’s easy to buy a stock that you like and think is going up. But what if you don’t like a stock and you think it’s going to go down? It’s hard to make money off of that view, because it’s hard to put that kind of a trade on with stocks. You have to sell something you don’t own in hopes of buying it back later at a lower price, something called selling short. (Selling short is easier with contracts for difference, or CFDs. But CFDs aren’t available to all clients - notably, they’re not available in the US.)

Many stock exchanges have an “uptick” rule, which says you have to wait until the stock goes up to sell short. But with currencies it’s easy, because as I mentioned before, every trade consists of a currency you’re buying and a currency you’re selling. That makes it easy to express your views in a trade. You buy the currency you think is likely to go up and sell the currency you think is likely to go down.

Instant execution with no commissions

Trades are usually executed immediately at the price that you see. By “immediately” I mean in less than a second, often much much less. Depending on your broker, there may be no commission on the trade. Instead, the broker will make its money on the spread, that is, the difference between the price that clients buy at and the price that they sell at. And for some pairs, especially EUR/USD, the spread is almost nothing.

Technical analysis works better

The fact that you can sell as well as buy makes it easier for people to use technical analysis on currencies. That’s convenient for people who like to use that method of analysis. A lot of people who trade FX look at the market that way, and several academic studies have shown that it can work. The shorter the time frame, the more likely people are to use technical analysis.

Fewer instruments to worry about

There are thousands and thousands of stocks quoted in the world. Who has time to follow them all? Or even a good number of them? To make matters worse, they’re subject to contagion. Sometimes a lot of stocks might go down just because one huge stock reports lower-than-expected earnings. For example, if Apple Corp. reports lower earnings and goes down, there’s a good chance that other tech stocks will go down too.

On the other hand, there are far fewer currencies to watch, and most investors just trade the four most actively traded ones, namely the dollar, euro, yen, and yen.

No inside information

Moreover, most of the information about currencies is out there in the public for everyone to see. There are no takeover bids, no insider trading, no new product developments, no chairmen or CFOs who are fiddling the books. All the information is public. The economic announcements that move the markets come out by and large according to schedules that are published well in advance. Everybody gets the same information at the same time. There are surprises, but most of them are known surprises, if you know what I mean: a number that’s better or worse than expected, or a speech by some official that says something new. It’s all quite above-board. And for the most part, sitting in your living room wherever you are, you have access to nearly as much information as anyone else anywhere.

Furthermore, the huge size of the market means that prices usually aren’t influenced by what anyone says on TV. In the stock market, a comment by some famous analyst at a well-known stockbroking firm can send the price of a stock crashing. If you’re not a client of that stockbroker, well then, too bad – you won’t hear about it until it’s too late. You don’t get the information and you lose. But in the FX market…well, let’s just say I’m a pretty well-known guy, but I’ve never read that the dollar went up or down because Marshall Gittler said something.

SUMMARY

In short, the FX market is a huge, liquid market – the biggest in the world -- where you can buy and sell at almost any time. Technical analysis works as well in this market as any other. And almost nobody has access to any information that anyone else doesn’t. It’s as fair a market as exists in this imperfect world.