First of all, the foreign exchange, or forex (fx), market has a high volume of activity, particularly in respect of the major currency pairs, where liquidity is highest, and which are responsible for some 85 per cent of the total volume of trading. There is a higher level of risk associated with trading other currency pairs. The high liquidity in fx trading ensures that trades are normally completed at the order price, and there are plenty of currency sellers and buyers to ensure that spreads remain tight.
Secondly, with a market open for 24-hours it is possible to trade promptly in response to political, market and economic news. This helps traders to cut losses and lock in or protect profits. Around the world, the five principal centres for trading are London, New York, Tokyo, Sydney and Frankfurt, and the five overlapping sessions for trading run from 9pm on Sunday evening to 10pm on Friday evening (Greenwich Mean Time).
The third reason for the rise in popularity of fx trading is trading on margin: this allows a trader to invest more than they actually have in their account, by agreeing a leverage rate with their broker. Let’s say a leverage of 50:1 is agreed or up to two per cent. Then, in order to trade £100,000 GBP/USD, the required starting sum or margin would be £2,000. It is always advisable to undertake transactions carefully – money gained can be converted to money lost and, when trading on margin, both profit and loss is therefore considerably greater.
Ultimately, fx trading is a low-cost option for many people. Most brokers make their profits on the dealing spread – the difference between the bid and ask price – and therefore do not charge commission. Sellers quote the ask price as the one at which they are willing to sell, and buyers quote the bid price as the one at which they are willing to buy.