Profit in an up or down market

In the forex market, profit potentials exist in both bull and bear markets. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. Therefore, if you are long one currency, you are also short another. As a result, profit potentials exist equally in both upward trending and downward trending markets. This is different from the stock market, where most traders go long instead of short stocks, so the general stock investment community tends to suffer in a bear market.

Pay zero commissions or exchange fees

In the stock market, individuals generally place their orders with a broker, who in turn routes the order to a market maker or exchange where the order is actually executed. As a result, two parties charge fees: the broker charges a commission, and the firm who executes the order on the exchange charges a spread (a cost that is usually hidden in the equities, but is transparent in the FX market). In the FX market, you pay only a very small spread – and thus enjoy a much lower transaction cost.

RefcoFX charges no commission or exchange fees to trade forex online or on the phone. Costs are further reduced by the efficiencies created by a purely electronic marketplace that allows clients to deal directly with the market maker, eliminating both ticket costs and middlemen. Stock traders can be more vulnerable to liquidity risk and typically receive wider trading spreads, especially during after-hours trading. Because the currency market offers round-the-clock liquidity, you receive tight, competitive spreads both intra-day and night.

Up to 50 times the leverage of trading stocks

The forex market provides traders access to a much higher leverage than the stock market. Forex traders can benefit from leverage in excess of 200 times their capital, versus the 10 times capital that is typcially offered to professional stock day traders. The margin deposit for leverage is not a down payment on a purchase of equity, as many perceive margins to be in the stock markets. Rather, the margin is a performance bond, or good faith depsit, to ensure against trading losses. This is very useful to short-term day traders who need the enhancement in capital to generage quick returns.

Trading forex with RefcoFX gives you up to 50 times the leverage of trading stocks. In stocks, for every $1,000 cash you invest, you control a maximum of $2,000 worth of stocks. The maximum leverage is 2:1. But with forex, if you invest $1,000 margin on a foreign currency trade, you can control up to $100,000 in currencies.

EXAMPLE
Trader A deposits $10,000 into a trading account to speculate on the USD/JPY exchange rate, one of the most heavily traded currency pairs in the world. Instead of trading just $10,000 though, Trader A ops to use the leverage available. Trader A decides to trade $100,000 with his initial investment, thus creating a leverage ratio of approximately 10:1 (since he is trading 10 times what he deposited.)

Now let's say the USD/JPY makes a 0.5% movement in favor of Trader A, a typical percentage move for the USD/JPY in a single day. On a $100,000 investment, a 0.5% move results in a profit of $500. On an investment of $10,000, though a $500 profit equates to a 5% return.

Alternatively, a more aggressive trader may decide to trade $2,000,000 with his initial $10,000 investment (200:1 leverage). In such a case, a favorable move of 0.5% would result in realized profits of $10,000, or 100% return on the initial investment.

What is leverage?
Leverage is a means of enhancing returns or value without increasing the investment size. The currency market is one of the most popular markets for speculation because of the high degree of leverage available. Leverage allows you to magnify your potential returns and is a powerful tool for generating meaningful profits while trading in the foreign exchange market. RefcoFX allows greater leverage than the equities, futures or options market; traders can utilize up to 100:1 leverage without risking a margin call situation. This means with a $1000 margin deposit, traders can place a 100,000 base currency position in the market. In the event the total value of the account falls below margin requirements, the system automatically closes all open positions. This prevents clients’ accounts from falling below the actual available equity particularly in a highly volatile, fast moving market. Bear in mind, though, that leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

Trade mini contracts for as little as $300

Many brokerages do not allow you to invest in odd lots, but only in blocks of 100 shares at a time. With many stocks valued at between $30 and $200, that can mean an investment of $3,000 to $20,000 – or more. But with RefcoFX, you can invest in foreign currencies for as little as a $300 deposit with mini contracts. The smaller trade size enables you to take smaller risks. The RefcoFX Mini is intended to introduce you to the excitement of currency trading while minimizing your risk. You can try out the demo account and “paper trade” or you can open up a mini account right now and trade for real.

If you like technical trading, forex is perfect for you

The strong trends that foreign currencies develop is a significant advantage for technical traders. Unlike stocks, currencies rarely spend much time in tight trading ranges and have the tendency to develop strong trends. Over 80% of volume is speculative in nature and, as a result, the market frequently overshoots and then corrects itself. A technically trained trader can easily identify new trends and breakouts, which provide multiple opportunities to enter and exit positions.

Stock traders who focus on technical analysis can implement the same technical strategies that they use in the stock market in the forex market. Long-term movements in the currency market generally correlate with economic cycles. Economic cycles tend to repeat themselves and therefore can be predicted with a fair degree of accuracy. Repetition is the key to technical analysis, since the entire premise of technical analysis lies in using historical price movement to forecast future price movement. Int he stock market, the fundamentals of a particlular company can change radically in a short period of time, making historical prices irrelevant in the prediction of future movement.

Technical analysis, which relies strongly on statistical assessments of the market conditions, beefits greatly from the fact that tthe forex market is more normalized, meaning it is less skewed than other financial markets. The stock market, which is more skewed than the forex market, offers less statistical reliability. Their distribution is less normalized and hence the market is not as likely to retrace back when a statiscal indicator suggests that a particlular asset is overbought or oversold. As a resolt, other markets are not as conducive to technical analysis.

Analyzing countries is easier than companies

Countries are often more stable than companies – and it's easier to predict their overall economic direction. Currencies are traded in pairs, so if a trader “buys” one currency, he is simultaneously “selling” the other. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition. Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment, and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade should be most-closely examined.

Trade 24 hours a day

Forex trading is the perfect market for active traders, as it can be traded 24 hours a day. Unlike stock trading, currencies do not get halted, ensuring the ability to trade during virtually any important event. The round-the-clock nature of the forex market ensures that there will be minimal gaps in the market. In other words, there is no potential for the market to close one day and reopen the next day at a drastically different price. Should news be released after the market closes that affects positions, traders will not have the opportunity to immediately liquidate. As a result, they will be forced to cope with market conditions upon opening the following day, when the market may open at a very different rate than when it closed.

As a result, traders become victims of illiquid markets: they were unable to react to news and world events whent he market closed, and hence wre unable to enter/exit positions. The seamless continuity of the foreign exchange market ensures that the market is liquid at all times, thus alleviating traders of potential risks associated with market gaps and illiquidity. While most exchanges have limited hours, the banks and market makers that operate the currency market are open 24 hours a day for trading. After-hours stock trading is not a very liquid or easy market to trade. But with forex, you can trade 24 hours a day – in the largest, most liquid market in the world.

In addition, if you have a full-time job during the day and can only trade after hours, stocks would be a very inconvenient market for you to trade. You would basically be placing orders based upon past prices and not current market prices. This lack of transparency makes trading very cumbersome. With the forex market, if you choose to trade after hours, you can be assured that you would receive the same liquidity and spread as any other time of day. In addition, you would be able to access and trade on real-time, executable prices.

Why not give it a try? It takes just a few minutes to download our FREE RefcoFX Trading Station.