10 Key Benefits of Forex Trading (and why you should start)

Here are 10 key benefits of forex trading (although there are certainly more) that constitute compelling reasons for you to start trading forex.

Foreign exchange (“forex”) trading means accessing the global market where currencies are bought and sold. It’s the largest financial market in the world, with a daily trading volume that exceeds $6 trillion, and that level of liquidity should already tell you something about how beneficial the market can be.

The benefits listed here will illuminate forex trading’s advantages for dedicated traders.

The 10 Key Benefits of Forex Trading in detail

Let’s unpack each benefit for its distinct advantages, and look at why forex trading is so appealing, and why you should consider starting.

1. Starting with a small amount of capital is possible

For many, the ability to start trading with small amounts is one of the most significant advantages of forex trading, especially for complete beginners.

While many other investment markets require a substantial initial capital investment—stocks, for example, can require thousands of dollars to begin investing—forex trading allows you to start with much less.

Advantages of this reality include:

• Micro and mini accounts: You’ll find most forex brokers offer different account types, including micro and mini accounts, which allow you to trade in smaller increments. For example, a mini account allows you to trade in units of 10,000 (instead of the standard 100,000), while a micro account allows for even smaller units, often 1,000. This low barrier to entry is great for beginners who don’t want to risk large sums of money while they’re learning the basics of trading.
• Risk management: Starting with a smaller amount of capital forces you to be more careful and disciplined, as you’ll have less room for error. Using smaller amounts to begin with means you’re learning without potentially exposing yourself to substantial losses.
• Scalability: As you gain experience and increase your confidence, you can scale up your position sizes. This scalability allows you to grow your account over time, without rushing into larger trades that may be too risky early on.

The ability to start small makes forex trading an ideal way for novices to test out the markets, find their feet, and gain exposure without committing a large portion of their savings upfront.

2. Highly liquid markets

One of the standout features of the forex market is its incredible liquidity (liquidity refers to how easily an asset can be bought or sold without affecting its price).

In the case of forex, liquidity means there is always a buyer or seller available for almost any currency pair you wish to trade, even if you are trading very large sums.

Such high liquidity (often absent in many other forms of trading and investing) also results in:

• Reduced slippage: The high liquidity of the forex market helps minimize slippage, which is when a trade is executed at a worse price than expected. In fast-moving markets, slippage can be a significant problem, but in forex, this issue is much less common due to the constant flow of capital in and out of the market.
• Low spread costs: Because there are so many participants in the forex market, brokers can offer lower spreads, which is the difference between the buy and sell price. In highly liquid markets, such as EUR/USD, spreads can be as low as 0.1 pips, making it more cost-effective for you to enter and exit positions.
• 24-hour access: The high liquidity in forex is also a function of the market’s ability to be traded 24 hours a day, five days a week, across different time zones and global markets. The sheer volume of trades ensures that there is always market activity at any hour.

As a forex trader, this means that you can execute large trades without worrying about the market becoming too illiquid.

In comparison, smaller markets, such as those for stocks or commodities, may face periods of low trading volume and wider spreads, especially outside of major market hours.

3. High leverage is available

Leverage is a powerful tool in forex trading that can allow you to control larger positions with smaller amounts of capital.

Leverage is the ratio between the amount of money you must deposit (the margin) and the size of the position you can control.

In the details:

• Leverage ratios: Forex brokers typically offer leverage ratios ranging from 10:1 up to as high as 500:1 (depending on the country and regulatory standards). For instance, if you have $1,000 in your account and the broker offers a 100:1 leverage ratio, you can trade up to $100,000 worth of currency.
• Amplifying gains (and losses!): Leverage can significantly amplify both potential profits and potential losses. For example, a 1% movement in the market could generate a 100% profit if you are trading with 100:1 leverage, but it could also lead to a total loss of your invested capital.
• Risk control: While high leverage can seem like an attractive feature of forex trading, it requires strict risk management. Traders must be aware of their exposure, use stop-loss orders, and never risk more than a small percentage of their account on a single trade.

4. Low trading fees

Compared to many other asset classes, forex trading offers relatively low trading fees.

In markets like stocks or commodities, investors may face commissions, exchange fees, and other transaction costs, but among the advantages of the forex market is that it’s typically much more affordable.

When it comes to spreads versus commissions, forex brokers typically charge a spread, which is the difference between the bid and ask price of a currency pair, rather than a commission.

In highly liquid pairs like EUR/USD, the spread can be as low as 0.1 pip, which keeps your transaction costs low.

There are no additional fees to buy or sell, unlike in equities, where commissions can add up quickly, and furthermore:

• No middlemen: The forex market is decentralized, meaning that there are no central exchanges or middlemen involved in the transactions. This structure results in fewer fees, as traders can execute trades directly with brokers or other participants.
• No stamp duty: In many countries, investors must pay stamp duty or capital gains taxes when they trade stocks. Forex trading is generally free of such duties, making it a more cost-effective way to trade for those looking to maximize their returns.

Comparatively low fees make forex trading more efficient, especially for those who trade frequently or use strategies like day trading, where multiple trades are made daily.

5. Negative balance protection

One of the riskier aspects of forex trading is the use of leverage, which can result in significant losses if the market moves against you.

However, many forex brokers now offer negative balance protection, which ensures that traders can’t lose more money than they’ve deposited into their account.

How it works:

• NBP: If your account balance falls below zero due to a losing trade, negative balance protection ensures that the broker will absorb the loss. Your account is effectively “capped” at zero, preventing you from owing more money than you deposited.
• Safety for beginners: This feature is especially beneficial for beginner traders who may not yet have the experience to fully manage the risks associated with leverage. It offers a safety net that prevents traders from becoming financially overexposed.
• Confidence in trading: Negative balance protection helps reduce the fear of catastrophic losses, giving especially newbie traders more confidence to experiment with different strategies, without the constant worry of losing more than their account balance.

This safety feature has, in fact, been a key reason why forex trading has become more accessible and appealing to retail traders, as it helps mitigate the inherent risks of high-leverage trading.

6. Long or short trades－you choose

In the forex market, you can trade both “long” (buy) and “short” (sell) positions as you please.

The ability to take advantage of both upward and downward market movements is one of the key features that differentiates forex trading from many other types of trading, such as stocks or real estate, where you are typically only able to profit in a rising market.

Traders engage in forex trading for various reasons: but the potential to go long or short is a prime consideration for many:

• Profiting in both directions: In forex, you can profit whether the price of a currency pair is rising or falling. This flexibility makes it possible to trade any type of market environment, from strong bull trends to volatile sideways markets.
• Execution simplicity Going short in forex is easy compared to other markets, where borrowing stocks or commodities to short can be a cumbersome and costly process. In forex, brokers simply allow you to sell a currency pair first and buy it back later, enabling you to profit from a decline in its value.
• Market strategy flexibility: The ability to go long or short makes forex a versatile market for implementing various strategies, from momentum trading to mean reversion and everything in between. Short-selling also allows you to hedge or protect other positions you hold.

7. Carry trades are possible

Carry trading refers to a strategy that sees you borrowing money in a currency that has a low interest rate, and utilizing those borrowed funds to buy a currency with a higher interest rate.

Your profit comes from the interest rate differential between the two currencies, which is also known as the “carry.”

• Example: If the interest rate in Japan (JPY) is 0.5%, and the interest rate in Australia (AUD) is 4%, you could borrow in JPY (to pay low interest) and invest in AUD (to receive higher interest payments). This allows you to earn the interest difference or “carry”, on top of any currency price movements.
• Long term strategy: Carry trades are typically longer-term trades, as they rely on a consistent difference in interest rates. The position is usually held for weeks or months, depending on how long the interest rate differential remains favorable.
• Volatility risk: While carry trades can be profitable in stable market conditions, they carry the risk that currency values will move unfavorably, wiping out any interest gains.

Carry trades are especially popular in stable economic conditions as they can provide a relatively low-risk strategy for earning passive income through interest rate differentials.

They do, however, demand an understanding of interest rate cycles and global macroeconomic conditions.

8. Hedging

Hedging is a risk management strategy used by traders to protect themselves from adverse price movements in the market.

As a forex trader, you can hedge your positions using various financial instruments, like options, futures, and contracts for difference (CFDs), in addition to directly trading currency pairs.

The advantages of hedging play out as follows:

• Hedging in forex: You can hedge by taking opposing positions in related currency pairs, such as buying EUR/USD while simultaneously selling USD/CHF, which is often correlated with the EUR/USD pair. If one position moves against you, the other may offset the loss, helping to reduce your overall exposure.
• Protecting open positions: Hedging is often used by traders who have open positions that they don’t want to close, but are concerned about short-term volatility. Hedging allows them to lock in profits or protect against a sudden market downturn.
• Reducing risk: Hedging strategies don’t guarantee profits, but they can reduce the potential for significant losses, especially in highly volatile market conditions.

For more experienced traders, hedging is a valuable tool for managing risk and preserving capital in uncertain or turbulent times, as it gives them a way to stay in the market while minimizing the potential for large losses.

9. 24/5 market access

The forex market operates 24 hours a day, five days a week, which gives you a level of flexibility you can’t find in other markets like stocks, which typically have set hours of operation.

The ability to trade forex at any time of day or night makes it an ideal market for those with busy schedules, different time zones, or non-traditional working hours.

The advantages of such a market are many:

• Global trading: Forex market sessions coincide with the opening hours of major financial hubs, such as Tokyo, London, and New York, meaning there’s always an active market somewhere in the world. Traders can take advantage of market-moving news or trends during different times of the day.
• More opportunities: The 24-hour availability increases trading opportunities, particularly for day traders or those who rely on short-term price movements.
• Flexibility: For those with jobs or commitments during the day, the ability to trade forex at night allows greater flexibility in terms of time management.

There are certainly preferred hours during which to trade forex, but one of the advantages for forex traders generated by the forex markets’ 24-hour nature is the tremendous flexibility provided, enabling you to successfully juggle work and home life commitments and still trade consistently.

10. Accessible for beginners

Unlike many other forms of trading and investing, forex trading is accessible to almost anyone with a computer or smartphone and an internet connection.

Many brokers also offer user-friendly platforms, educational resources, and demo accounts for beginners, allowing you as a newcomer to practice without financial risk.

The advantages for beginners include:

• Educational resources: There are abundant resources available online to help beginners learn the basics of forex trading, from video tutorials to books and online courses. Many brokers offer free educational content that covers everything from fundamental and technical analysis, to more advanced strategies.
• Demo accounts: Most brokers offer demo accounts where you can trade with virtual money, allowing you to get a feel for the platform, test strategies, and gain experience without risking your real funds.
• Affordable start-up: As we mentioned above, forex trading allows you to start with relatively small amounts of capital, making it accessible to beginners who may not have a lot of funds to invest initially.

What are the alternatives to Forex Trading?

While forex trading offers numerous benefits, there are also alternative markets to consider, such as:

• Stocks: Stocks let you buy into individual companies. Unlike forex, where you trade pairs, stocks offer more of a “buy and hold” mentality, suitable for investors looking for longer term gains.
• Commodities: Commodities like gold, oil, and agricultural products are another popular market. These markets are influenced by supply and demand, geopolitical events, and macroeconomic trends.
• Cryptocurrencies: The rise of digital currencies has provided new opportunities for traders looking for high volatility and market movements. However, cryptocurrencies are often riskier and more unpredictable, and the still persistent and abundant hype is sometimes difficult to decipher.

Learn Forex Trading with WR Trading Mentoring

For those serious about getting started with forex trading, enrolling in a structured educational program can be invaluable.

WR Trading offers personalized coaching, strategy development, and real-time market analysis to help beginners and experienced traders hone their skills－click on the link for details.

Conclusion: Forex has a lot of benefits and is suitable for beginners

The advantages of forex trading as a starting point and indeed lifelong strategy are numerous, and we haven’t even touched on numerous other benefits, like the fact that modern forex trading platforms come with advanced features that enhance your trading efficiency and position management.

There is also the automated trading aspect, where Expert Advisors (EAs) allow you to automate your strategies and execute trades without constant supervision. The right trading broker is essential to save costs and ensure quick order execution.

The advanced charting tools, real-time data feeds, and access to market news are further benefits of forex trading, alongside easy mobile trading, and the fact that forex trading is eminently scalable.

Taken as a whole, the available tools and current technological status of forex trading put it at the top of the list of entry points for beginner traders.

If you’re looking to start forex trading－and it’s our recommendation that you should－consider using the resources available, starting small, and learning from mentors like WR Trading－we’ll help you avoid the pitfalls, start out successfully, and gain in profitability as you progress.

Frequently Asked Questions on Benefits of Forex Trading