Although the forex market is by far
the largest and most liquid in the world, day traders have up to now focus on
seeking profits in mainly stock and futures markets. This is mainly due to the
restrictive nature of bank-offered forex trading services. Advanced Currency
Markets (ACM) offers both online and traditional phone forex-trading services
to the small investor with minimum account opening values starting at 5000 USD.
There
are many advantages to trading spot foreign exchange as opposed to trading
stocks and futures. Below are listed those main advantages.
o
Commissions:
ACM
offers foreign exchange trading commission free. This is in sharp contrast to
(once again) what stock and futures brokers offer. A stock trade can cost
anywhere between USD 5 and 30 per trade with online brokers and typically up to
USD 150 with full service brokers. Futures brokers can charge commissions
anywhere between USD 10 and 30 on a round turn basis.
o Margins requirements:
ACM
offers a foreign exchange trading with a 1% margin. In layman's terms that
means a trader can control a position of a value of USD 1'000'000 with a mere
USD 10'000 in his account. By comparison, futures margins are not only
constantly changing but are also often quite sizeable. Stocks are generally
traded on a non-margined basis and when they are, it can be as restrictive as
50% or so.
o 24 hour market:
Foreign
exchange market trading occurs over a 24 hour period picking up in Asia around
24:00 CET Sunday evening and coming to an end in the United States on Friday
around 23:00 CET. Although ECNs (electronic communications networks) exist for
stock markets and futures markets (like Globex) that supply after hours
trading, liquidity is often low and prices offered can often be uncompetitive.
o No Limit up / limit down:
Futures
markets contain certain constraints that limit the number and type of
transactions a trader can make under certain price conditions. When the price
of a certain currency rises or falls beyond a certain pre-determined daily
level traders are restricted from initiating new positions and are limited only
to liquidating existing positions if they so desire.
This mechanism is meant to control daily price
volatility but in effect since the futures currency market follows the spot
market anyway, the following day the futures market may undergo what is called
a 'gap' or in other words the futures price will re-adjust to the spot price
the next day. In the OTC market no such trading constraints exist permitting
the trader to truly implement his trading strategy to the fullest extent. Since
a trader can protect his position from large unexpected price movements with
stop-loss orders the high volatility in the spot market can be fully
controlled.
o Sell before you buy:
Equity
brokers offer very restrictive short-selling margin requirements to customers.
This means that a customer does not possess the liquidity to be able to sell
stock before he buys it. Margin wise, a trader has exactly the same capacity
when initiating a selling or buying position in the spot market. In spot
trading when you're selling one currency, you're necessarily buying another.
+ comments + 1 comments
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