Why is Forex Trading so Popular?

09-08-2017 | Anne Seymour |

At its core, the forex market is a volatile and changeable entity, and so single currency has embodied this recently as successfully as the U.S. Dollar (USD).

Due to the negative impact of geopolitical conflicts and the ongoing inquiry into potential collaboration between the Trump administration and Russia, the USD has declined against the Yen and the Australian Dollar while also losing 8% against the pound (GBP) since May. This came after six consecutive months of growth for the currency, which remains the single most traded asset of its type around the world.

As well as highlighting the volatile and liquid nature of the marketplace, this also also underlines how it is possible for currency traders to profit regardless of the prevailing economic climate. This is one of the many reasons why forex trading is so popular, with a few more highlighted below:

You Can Profit in a Depreciating Marketplace

Not only can forex traders make money be speculating about the decline of specific currencies, but they can also profit in a depreciating marketplace.

Even during a period of global recession, there are some currencies that perform better than others, and this was borne out during the latest financial crisis of 2009. Back then, minor currencies began to make significant gains against established assets such as the USD and the GBP, creating an opportunity for traders to profit from emerging economies.

This trend remains relevant to this day, with forex providing investors with ample opportunity to boost their income streams even as a recession unfolds.

Forex Trading Delivers Margin-based Returns

Currency is traded as a derivative, meaning that investors are never required to assume ownership of the underlying asset. This creates considerable flexibility and liquidity within the market, while it means that returns are not constrained by the fixed value of the asset in question.

In fact, forex trading delivers margin-based returns, which creates an opportunity for traders to achieve profits that are far in excess of their original investment. This is different to how assets such as stocks and real estate operate, as your potential returns are always dictated by the underlying value of your assets.

This also means that you can lose far more than your initial investment, however, so there is a need to understand this level of risk in detail and manage it effectively.

Online Trading Platforms Have Made Forex Trading More Accessible

The concept of risk is an interesting one, and something that all forex traders must give careful consideration to. Fortunately, the management of risk is also something that has been directly aided by technological advancements, with contemporary online trading platforms offering a number of tools that allow for more efficient trades.

One such tool is the demo account, which is now a common feature of all virtual trading platforms. This can be used for a period of between three to six months, while it enables traders to hone their strategies by accessing a simulated, real-time marketplace. Using false currency, they can safely test their skills and bridge the often huge gap between theoretical knowledge and practical experience.

Modern platforms also include stop-loss features, which are essentially thresholds that determine when positions are automatically closes. This means that individual trades can be immediately stopped once you have lost a predetermined amount of money, preventing you from incurring huge losses and safeguarding your hard-earned capital as a result.

About Anne Seymour

Anne is a young webpreneur, interested in all things related to money: earning, investing, saving. She's paid off her student loans and now is looking forward to doing a lot of writing and traveling.

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Recent Comments

  • Alex

    September 3, 2017 at 11:59 pm

    There is no doubt that trading is more accessible than ever before, but there is a great need for the new traders to educate themselves of the best practices and basic fundamentals of trading. The right mind-set is key to profitable trading.

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