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FX stands for Foreign Exchange. However, what when we say FX, this actually means Margin Foreign Exchange Trading. This type of trading has recently become Margin Guarantee Foreign Exchange Trading. The guarantee means you cannot lose more than the capital you place as a margin to trade. Even though there are many people that still don’t know the term Forex, and some may find it difficult to understand, we believe Forex is actually easy to grasp and will gain popularity.
To gain understanding, let’s take a look at it in two parts. Foreign Exchange trading is the practice of selling and buying currencies for profit. For example, US dollar and Japanese yen. While Margin Guarantee refers to the fact that the money placed on your trading account allows you to buy or sell more than the amount of your capital.
In other words, in Forex the small amount of deposit can be used to trade in much larger amount. By the way, Forex is generally used overseas rather than FX.
The Foreign Exchange market is said to be several tens of times of the world stock market. There is also a theory that an average transactions of about 150 to 200 trillion yen are carried out per day. That is an unbelievable figure when compared to the Japanese annual budget of 80 trillion yen. With such large trading volume, the power of the person holding a market will be bigger than the insider traders or government interventions. This leads to the concept of even playing field, everyone has the same trading opportunities. Doesn’t this seem like the most attractive aspect of Forex trading?
In Forex trading, there’s a fee you have to pay to the Forex broker called transaction fee. Transaction fees vary depending on the trading company, but there are many trading companies that set FX's transaction fee for free. If fee applies, it’s mostly between 3 yen to 5 yen per $1. When compared to bank’s foreign currency deposit of 2.5%, Forex transaction fees are clearly cheaper. Thus, it may be similar to a foreign currency deposit, or more advantageous than the interest earned with it. In Forex trading, a round trip of $10,000 (about 800,000 yen) will cost about ¥500, which is very cheap when compared to equity investing. Even though stock trading and net selling has become much cheaper recently, Forex trading commissions still remain much cheaper than the stock market. Especially recently, many overseas FX companies also have narrow trading fees (spreads), so overseas FX companies are recommended.
The Forex market is not a one-sided market like some types of stocks. This means it is unlikely the price of the currencies of developed countries will continue to move significantly in one direction. The main reason is the pressure in each currency “buy when cheap”, “sell when high”, like repeating the tug of war. Although market price changes depending on which pressure is dominant, in case of Forex, that pressure is relatively balanced, meaning that in short term, price may change but the market eventually returns to previous levels. Therefore, if you can grasp this range (box) accurately, you will be able to make profits in FX.
There are many different markets such as Stock Market, Commodity Market, or Real Estate Market. The time when price changes vary from long to short, such as "from price increase to price decrease", "from price increase to price decrease". When thinking of long-term, the Real Estate Market comes to mind, prices for this asset may take 10 or 30 years for the market to reverse.
In the exchange market, there are daily fluctuations, fluctuations in units of one to three weeks (cycles), in months, in years and decades. Even in a 1-3 week cycle (rising and falling), there is a 1% movement, so even $10,000 units can earn about 10,000 yen. If the market price is reversed quickly or the cycle is short, it can be said that it is a very effective market for individual investors who are not very funded, perhaps we can say the market itself is very effective. In other words, even with small trading amount, we can stack up considerable profits by repeated trading. Even if we miss the first wave, we can always ride the next.
Basically, stocks and merchandise trading do not make profits unless you get capital gains. In other words, you cannot make a profit unless you do buy low and sell high. However, in Forex trading, each currency also carries interest when held in deposit. Foreign countries have interest rates that range from 2% to 10%. The difference in the interest rates of the two currencies is known as Swap Points. So in the case of Forex, you can earn a profit from buying and holding a currency with a high interest rate, in some cases as high as 10%. It is important not to rely too much on swap points for you may run into some painful experiences. In fact, the ability to interpret the daily interest rates of the Japanese yen and foreign currencies is definitely one of the charms of Forex trading.
"Leverage" that can aim large profits with less capital is also a big attraction of FX. Even if the cash at hand is small, you can trade many times the cash on hand by depositing its capital (margin) as collateral. Although leverage can be applied to other transactions, FX which can apply leverage of 10 to 20 times is said to be considerably attractive because the upper limit is lower than FX (upper limit 3 times etc.). However, this is also a merit and a disadvantage. Since there is a risk of being loss cut by a little exchange movement when it comes to high leverage, it is necessary to firmly manage positions. Of course, if you trade at the amount you set, risk is the same as foreign currency deposit, so it can be said that the cost is cheap.
It is similar to margin trading in equity investment, but if you anticipate that the market price will rise, you can buy orders, if you anticipate to go down, you can order for sale. In other words, you can also start from selling order, so it’s functionally convenient. Since trading from selling orders is "sell high and cheap buy back”, it would be good to place an order if the market price is going down (yen appreciation.
Foreign Exchange is carried out by trading currencies between two countries. It is actually performed in a network called the Interbank market. The Forex market started in Tokyo and now extends to 50 different locations worldwide. The market is always open any time of the day or night, excluding holidays and year ends, so you can trade at any time of the day at your own convenient. Even busy office workers can take the challenge.
Compared to stock trading, the small price movement in Forex is a feature that allows maintaining a low level of risk. Price action in stocks can be very intense. It is common for a share price to jump to ¥1 million or to fall to a value of a scratch of paper. In Forex since it’s a currency, there’s no such thing as $1 to become ¥10,000 or ¥10.
Profit in Forex comes from buying when yen is high, selling when yen is cheap. The advantage is in the abundant sources of information about yen. It’s easy to learn when yen appreciation or yen depreciation from the information in the news, newspapers and on the internet that it is impossible to miss. The information you can get about Forex is easily available.
There you go, we have given you 10 specific benefits to trading Forex. In GEMFOREX, we have organized a wide variety of logical features in the free & unlimited use of automated Forex trading software (EA). For the first time, now available overseas. Easy-to-use even for overseas novice traders who are considering Forex markets, as well as for more experienced traders. Open an account with GEMFOREX and enjoy an improved Forex trading experience.