10 Reasons to Trade Forex in 2022
There are many reasons to trade Forex. Here are just a few of the reasons that have encouraged millions of traders to try their hands.
Most Forex brokers in the UK and abroad charge no commission at all on trades. Instead, they earn a profit through the bid/ask spread. The spread is simply the difference between the price at which you can buy and sell a currency pair, at any point in time.
Lower trading fees
Some people will argue that spreads and commissions are simply different ways to make you pay for your trades. There’s truth in that. Except that trading on spreads tends to be cheaper than commissions, especially when you trade small volumes because a commission will account for a large share of small trades. Under normal market conditions, the typical bid/ask spread usually comes in below 0.1% across popular currency pairs.
When you trade Forex on a spot basis, most brokers will forward your order to the liquidity providers they work with. These include large banks, hedge funds, and other financial institutions that will execute your order directly, buying or selling from you as applicable.
Trade 24 hours a day
The foreign exchange market trades round the clock, Monday to Friday. Some Forex traders appreciate the ability to “switch off” on weekends, without having to worry about monitoring their portfolio in their sleep.
In contrast, stocks typically trade for 8 hours a day, also Monday to Friday, and cryptocurrencies trading on a 24/7 basis, including on weekends and public holidays, which can be exhausting when the markets are on edge.
No market manipulation is possible
The foreign exchange market is one of the deepest, with trillions of dollars changing hands every day. The largest trading volumes happen when trading sessions overlap, as is the case for example towards the end of the day in London and the start of the trading day in New Work. Market depth makes it impossible for an entity to manipulate exchange rates.
If you are new to Forex trading, you might be surprised to learn that you can place a $100,000 trade with a low $1,000 deposit. Your broker will lend you the difference if you want to. This is known as leverage and is commonplace in the industry because exchange rates tend to move only in small sizes.
Leverage can dramatically increase the return on your investment. For example, if your trade were to gain an additional $1,000, you would have generated a 10% return on your deposit. However, it can also magnify your potential losses and should be used with caution.
Low initial deposit
Competition between Forex brokers has helped bring down the minimum amount you need to get started. Nowadays, you can find brokers that offer micro trading accounts with a low $5 deposit. These micro-accounts also come with small trading sizes.
We don’t recommend starting with such a low amount, especially if you plan on using leverage, as you could easily be liquidated if prices move against you.
However, low initial deposits have helped open up the industry to a wider pool of traders.
Low correlation with stocks and bonds
With central banks set to increase interest rates to fight inflation, stock, bonds, and crypto-assets may struggle to find direction in 2022. In January, a 60/40 portfolio split between equities and high-quality bonds, a bedrock of long-term investing, posted its worst monthly slide since March 2020, when the pandemic struck. In contrast, the Forex market may offer a safer place to trade, as only changes in relative interest rates affect exchange rates, not absolute changes in interest rates.