Online Forex Currency Trading
Here are the characteristics of forex:
In forex there are no commissions. However there is a spread.
You won’t have to overcome the commission to gain a profit, but you have to just overcome the spread.
The forex turnover is estimated to be 1.9 trillion dollars a day, many times larger than the largest stock markets in the world.
There’s up to 100 to 1 leverage in forex trading.
This does not mean that you should use all of it.
Automated stop losses
You set automated stop losses with your online forex provider, and so they’re filled automatically when your stop loss price is hit. As mentioned, there is very high liquidity in forex, so that there’s usually currency traded at every price point the currency moves through, with the exception of the less traded “exotic” currencies.
But does slippage ever occur in forex? (Slippage occurs when the price you intend to enter or exit, is different from your actual entry or exit price). There are two situations where gapping and therefore slippage, may occur.
Firstly, after weekends, there may be gapping as the market reopens for trading on Monday. Some traders may exit their open positions on Friday night to re-enter on Monday if appropriate.
Secondly, after a major economic announcement, large moves of 50 to 100 pips may occur over minutes. Again, some traders may exit their open positions prior to a major economic announcement, and re-enter afterwards if appropriate, in order to avoid getting stopped out unnecessarily.
You can go long or short with forex trading.
24 hour a day market
The forex market does not close except for the weekend. This is because the forex market is worldwide. Somewhere around the world, there is a market open at any one time over the 24 hour period. So as the day starts in the international date line near New Zealand, the different countries trading begins one after another…
However, the times that you’ll see the greatest trading activity and liquidity in the market is when the major countries are open for trading. These are when Tokyo, London and New York open.
You can get to know the currency pairs well
There are 4 to 6 currency pairs that are the most popularly traded, including the 4 “majors” which are the EURUSD, GBPUSD, USDCHF and USDJPY, and also other currency pairs such as the USDCAD and AUDUSD. Because of this, you can get to know the currency pairs well.
On the other side, the risks in forex trading are:
Your results are multiplied with leverage. If you do not trade with a system, and do not apply money management rules to your trading, you can lose your float even easier.
Assuming your forex provider (many do) kindly exits your positions automatically when the position goes against you far enough to lose the total amount of your float except for the part of the float used as margin for the trade, then you won’t be able to lose more than your float. Leverage is certainly beneficial if you follow a good system, and have money management rules.
If the economic or political climate of the world changes, there may be increased volatility in the forex markets, resulting in prices changing more rapidly, and even causing prices to gap, and therefore cause slippage if you’re stopped out. If this occurs, your stop losses may filled at a level beyond what you planned, resulting in a greater loss than expected for that trade.
This is the risk of holding an account in a different currency to the currency you would be spending the money in. For example if you live in Australia, and you hold an account in US dollars, then as the exchange rate changes, this will mean that the value of your account when you convert it to Australian dollars, will be subject to these changes.
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