The goal of this article is to cover two very important things, first of them is the difference between foreign exchange trading & other investments and the second thing we will go through is demo accounts and their usefulness for investors.
Foreign Exchange Trading & other Investments
Foreign exchange market provides investors multiple benefits in comparison to some other forms of investment and in the next section we will go through some of the advantages investors have by trading in forex exchange market.
Very Low Margin for Trading
Forex trading gives traders the scope of using large funds by investing lesser capital using the technique of margins. For example, if margin allowed is 200:1 then investor can utilize $200,000 for forex trading with investment of $1000. If we talk about margins then it is also important to know about margin calls which state that a position can get liquidated in case margin level goes lower than required level. Avoiding such condition is possible if investor monitors his or her open positions & uses stop losses to minimize risks.
No Requirement to Pay Commission/Fees
In this type of trading the forex broker will not ask for a commission with respect to purchase or sale transactions conducted. However, in transactions there will be spread value, which is price difference between sale & purchase rates. The spread value is around two to three forex pips for bulk of currency pairs being traded in a market.
All Day Long Trading
This market stays open 24 hours with trading taking place in different sessions. These sessions take place sequentially in different market such as European and Asian, providing investors the scope of all day trading. Some facts about trading will clearly illustrate the point, Asian market is where forex trading starts on Sunday and finishes by Friday in the New York market.
Totally Open Market
Foreign exchange market gives the traders features such as high liquidity plus the currency values cannot be modified by central banks thus making trading totally competitive for everyone taking part in it. If we compare foreign exchange market to the stock markets then we will find that here everyone has equal access to information. In addition to it the same information is used by large banks and also the small investors helping the market to remain completely open.
Low Risk Bearing
Forex trading gives various techniques by which you can reduce your market exposure as well as possibilities of losses. Some techniques used for this purpose are like guaranteed stops and stop losses. If you combine tools for risk analysis with these techniques then it can become easier for you to protect your position.
As mentioned at the beginning we will now look at forex demo accounts which can be used by new investors to analyze market conditions without the need to actually invest any funds. These demo accounts help investors practice forex trading without having to worry about losing there money. After they fully practice trading using these demo accounts, traders can then use such experience in live trading. Demo accounts help you to learn how to open or close positions, how to take part in trades and most importantly execute trades. However, some negatives are also attached with trading in demo accounts such as less experience of how live trading pressure effects your performance, development of false sense that trading in foreign exchange market is relatively easy.
Thus we can conclude here by saying that forex trading is far more advantageous than other forms of trading and using a demo account at the start of trading can certainly help you get accustomed to how the market functions.