Benefits of forex trading
Foreign exchange (forex, or FX for short) is the marketplace for trading all the world’s currencies and is the largest financial market in the world. Here, you’ll learn about the biggest advantages of forex trading including market hours, liquidity, and the ability to trade on margin.
Interested in forex trading with us?
Why trade forex?
Many traders are drawn to forex for the market’s volatility and extended trading hours compared to other markets like stocks or indices. The main benefits of trading forex are that it enables you to:
Seize forex volatility
The high volume of currency trades each day translates into billions of dollars every minute, which makes the price movements of some currencies extremely volatile. You can potentially reap large profits by making a prediction on price movements in either direction. But, volatility is a double-edged sword – the market can quickly turn against you, so it’s important to limit your exposure with risk-management tools.
Trade around the clock
The forex market is open 24 hours a day, five days a week. With us, you can trade forex from 4am Monday to 6am Saturday (UTC +8). These long trading hours are made possible because forex transactions are completed over the counter (OTC), rather than through a central exchange.
And, because forex is a truly global market you can always take advantage of different active session’s forex trading hours. That said, it’s important to remember that the forex market’s opening hours will vary in March, April, October and November as countries shift to daylight savings on different days.
Go long or short
With us, you’ll trade forex with CFDs. CFDs are financial derivatives, meaning you can go long or short.
Going long means that you expect the price of a forex pair to rise, while going short means that you expect the price to fall. You’d go long if you think the base currency will strengthen against the quote currency, meaning you expect the pair’s price to rise. Alternatively, you’d go short if you think that the base will weaken against the quote, meaning that you expect the pair’s price will fall.
For reference, the base currency is always on the left of a currency pair and the quote currency is always on the right. The price for a forex pair states how many of the quote currency you would have to sell in order to buy a single unit of the base.
It’s important to note that CFDs are leveraged, which we’ll cover further below.
Does forex trade on weekends?
As standard, the forex market is closed over the weekend. But when you trade with us, you’ll get exclusive access to three of the most popular currency pairs on the weekend – GBP/USD, EUR/USD and USD/JPY.
You won’t get these pairs on the weekend with other brokers, so you’ll need to create an account with us if you want to trade forex on the weekend.
Capitalise on high liquidity
Forex is the most liquid market in the world because there is a large number of buyers and sellers looking to make a trade at any given time. Each day, over $6 trillion dollars of currency is converted by individuals, companies and banks, which is roughly twice the annual British gross domestic product (GDP).
Forex’s high liquidity means that transactions can be completed quickly and easily, and that spreads are often very tight – meaning the underlying market price won’t have to make a significant positive move in order for your trade to be profitable.
Make your money go further with leverage
You can trade forex with us by CFDs. CFD products are leveraged, which can make your money go further. Leverage in forex enables you to open a position on the currency market by paying just a small proportion of the full value of the position up front.
For example, opening a CFD position on EUR/GBP might require a deposit worth just 0.5% of the total value of the position. This initial deposit is referred to as margin.
The profit or loss you make will reflect the full value of the position at the point it is closed, so trading on margin offers an opportunity to make large profits from a relatively small investment. But, it can also amplify any losses, which could exceed your initial deposit. So, it’s important to consider the total value of your leveraged forex trades before you open a position.
We have a range of risk-management tools to help you control your exposure to risk, including stop losses, trailing stops, guaranteed stops and price alerts.
Benefit from tax-efficient products like CFDs
In some territories, CFDs are exempt from stamp duty but you will pay capital gains tax on your profits. However, you can offset your losses against your profits for your capital gains tax liability, which makes CFDs useful for hedging.1
Choose from a wide range of currency pairs
Forex trading gives you the opportunity to trade a wide variety of currency pairs, trading on global events and the relative strength of major and minor economies.
Our offering lets you trade over 80 currency pairs including:
- Major currency pairs like GBP/USD, EUR/USD, and USD/JPY
- Minor pairs like USD/ZAR, SGB/JPY, CAD/CHF
- Emerging currency pairs like USD/CNH, EUR/RUB and AUD/CNH
- Exotic pairs like EUR/CZK, TRY/JPY, USD/MXN
These pairs are all available to trade on our award-winning trading platform and app when you create an account with us.2
Hedge with forex
Hedging is a technique that can be used to reduce the risk of unwanted moves in the forex market by opening multiple strategic positions. Although volatility is part of what makes forex so exciting, hedging can be a good way of mitigating or limiting your loss to a known amount.
There are a variety of strategies you can use to hedge forex, but one of the most common is hedging with correlated currencies. By opening opposing positions on forex pairs that are positively correlated – like GBP/USD and EUR/USD – you can limit your downside risk. For example, a loss on a short EUR/USD position could be mitigated by a long position on GBP/USD.
Alternatively, you could use forex to hedge against loss in other markets, such as commodities. As an example, USD/CAD generally has an inverse relationship with crude oil. So, a long USD/CAD position can be used as a hedge against falling oil prices.
Access tools to help you trade
We have a range of in-platform tools that can help you trade. These include our price alerts and trading signals, to a whole variety of technical indicators that you can overlay on any price chart with the click of a button. Plus, when you trade on our platform, you’ll get integrated news feeds from our own in-house analysis team as well as social media.
Aside from this, we also offer educational tools like IG Academy, which is loaded with clear and engaging forex trading courses to help you get comfortable with the markets and the nuances to trading.
If you’re still deciding whether forex trading is for you, why not try our free demo account? You’ll get completely risk-free access to $20,000 in virtual funds, so you can try forex trading and build your confidence without being exposed to the risks of the live markets.
Why trade forex instead of stocks?
Your decision about whether to trade forex or stocks on leverage should be based on which asset you are interested in trading – currencies or shares. However, there are a few reasons why some traders prefer to trade forex than stocks:
- Market opening hours: the stock market is limited to an exchange’s opening hours, whereas the forex market is open 24-hours a day, five days a week. However, it is worth noting that certain stock indices are available for weekend trading
- Higher liquidity: the forex market sees an average daily turnover of $5 trillion, whereas the stock market sees comparatively fewer traders per day
- Greater volatility: the stock market tends to have more stable prices that change over a longer period of time. Although this is a great thing for some trading styles, the volatility of the forex market can create an exciting range of opportunities for shorter-term traders
When you are deciding whether forex or the stock market is better for you, you should consider your attitude to risk and your financial goals.
1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Best Finance App, Best Multi-Platform Provider and Best Platform for the Active Trader as awarded at the ADVFN International Financial Awards 2022.