Advantages

Forex trading is becoming more popular with private investors and it does have a number of advantages over more traditional forms of trading.

Liquidity

As the Forex market is so huge it is very liquid, with plenty of buyers and sellers. This means that you are highly unlikely to get stuck with untradeable assets, especially if you are dealing with the most popular traded currencies.

Execution Quality

Because the market is highly liquid, most trades can be executed at a single market price.

Leverage

Often Forex firms permit experienced investors to take out foreign exchange positions without having to put up the whole amount of capital. This can allow traders to take more lucrative positions, although of course if they do call the market wrong then the potential losses are also larger.

Forex investors are often permitted to trade foreign currencies on a highly leveraged basis. For example some firms allow a position of up to 200 the original investment. An investment of US$1,000 would permit to trade up to US$200,000 of any particular currency.

A 24 hour market

Unlike equities, that are usually traded within market opening hours, Forex trading goes around the clock. Traders can react to new and information as it breaks, rather than having to wait until the market opens. You can get in and out when you want to.

A 'purer' market

The Foreign Exchange market is one of the purest markets in the sense that the potential for profit exists as long as there is a movement in the exchange rate.

Currencies are traded in pairs. For each transaction one currency is sold and another is bought. One side of this bargain will gain, and of course the other will lose. But the potential for profit is always there.

As the market is made up of so many players it is also harder for one organisation or trader to manipulate it.

Risk warning:

Trading Forex is not for the inexperienced investor.

Taking out leveraged positions means that you could lose your entire initial investment. If the value of your position decreases by a greater amount, then you could lose even more than your initial investment.