Foreign exchange is the world’s biggest market, and it has existed since countries started minting currencies. Because it takes place on an Over-the-Counter (OTC) market rather than a physical exchange, it is the world’s only truly continuous and ongoing trading market.
It is widely preferred by traders worldwide since they can easily buy and sell currencies at their fingertips using platforms like LiteForex broker. Below are some of the reasons that explain why Forex is the largest and most liquid market for Currency Trading:
Largest Market in the World
The Forex market is genuinely global due to its sheer size and trading volume. With traders from all around the world engaging on a daily basis and clocking a daily turnover of roughly USD 6 trillion, making it undoubtedly the world’s largest market.
No Physical Location
Unlike the world’s stock and bond markets, which have physical locations, foreign exchange is transacted in an over-the-counter market where brokers and dealers engage directly with one another, with no central exchange or clearinghouse. It is interconnected through a network of computers where information is transmitted electronically.
The Forex trading market is open five days a week, for 24 hours every day which enhances the scope of trading since the trade can virtually take place anywhere as long as a market is open somewhere in the world.
The first major market opens at 22:00 GMT on Sunday in Sydney, Australia, and trading finishes when the New York market shuts at 22:00 GMT. on Friday in New York, United States.
Fewer Entry Barriers
Since there is no minimum capital requirement, the Forex market is an excellent venue for first-time traders who want to start small because of its easy entry and global scope. One of the numerous benefits of foreign currency trading is that brokers provide demo accounts. Newbie traders can use them to practice their skills in a market simulation before committing to any trades.
In Forex trading, the idea of leverage is relatively regular. Traders can trade greater stakes in a currency by obtaining money from a broker. As a result, leverage increases the profit from Forex trading by magnifying the returns from favorable changes in the exchange rate of a currency. Traders can adapt the amount or size of their trades to their desired leverage. However, the broker will want an initial margin, which is a proportion of the trade’s notional amount stored in the account as money.
Low Transaction Costs
Brokers in the equity markets charge a percentage of overall trade volume, which reduces your profit margin. In comparison, the Forex market offers a low-cost transaction environment. This is because the cost incurred is mainly the broker’s fee, covered by a spread. The spread refers to the difference between the ask and bid prices.
Because currency markets are worldwide networks that operate across time zones, no single country, bank, investor, or government can have a long-term influence or manipulate exchange rates.
The Forex market has many participants, which means that prices are controlled by external variables such as the economy, which makes it a fairground to do transactions. In this market, there are no middlemen, and brokers solely serve to link buyers and sellers. Forex markets set a standard for transparency that other financial markets should embrace.
The Forex market is regarded as the most liquid market globally due to the high volume of trading activity that occurs around the clock. Liquidity refers to an asset’s ability to be bought and sold with minimal impact on its value.
Liquidity is vital because it allows traders to easily enter and exit positions 24 hours a day, five days a week. It permits big trading volumes to enter and depart the market without experiencing the large price swings that would occur in a less liquid market.
Wide Variety of Trading Options
When it comes to trading, the Forex market offers a wide range of alternatives. Traders can choose from hundreds of different currency pairings to trade. They also have the option of engaging in spot trade or entering into a long-term deal. Futures contracts are also available in various sizes and maturities to fit the demands of Forex traders. As a result, the Forex market caters to all budgets and risk appetites of traders.
Forex trading has various advantages over other markets since it is more flexible and inclusive. Due to its low costs, wide range of markets, and flexible trading hours, it can be defined as the most regularly traded market in the world. Its size and depth make it the perfect trading platform, especially if you’ve never traded on financial markets.