Relative to other markets, the forex market has some distinct advantages. Those advantages are discussed below.
1. Greater Liquidity. According to the Bank of International Settlements' 2007 Triennial Central Bank Survey, the average daily turnover in traditional foreign exchange markets is estimated at $3.21 trillion. The overall turnover in the forex market is more than 10 times thecombined daily turnover on all the world's equity markets. For traders, this means that it's easier to get in and out of trades at the price you want. At least from this perspective, the forex market is safer than other markets.
2. Leverage. To put it simply, leverage is the ability to trade with borrowed money. Many brokers offer traders 200:1 leverage at no additional cost -- meaning traders can trade 200 times the amount of capital they've deposited in their account. Leverage allows traders to more precisely define the amount of risk they want to assume, and can allow for above average returns as well. It should be noted that leverage needs to be used cautiously; in fact, poor usage of leverage is one of the primary causes of forex traders losing all the wealth in their account. Used prudently, though, the amount of leverage the forex market offers -- which is far greater than what other markets offer, and typically comes at no additional commission cost -- can help traders earn greater returns while staying maintaining a level of risk that is appropriate for their investment portfolio.
3. 24 Hour Availability. The forex market is truly a global market; it is open 24 hours a day. While many stock markets have after hours trading, those markets are often very illiquid during those times; in other words, prices can be more volatile, and it can be harder for traders to get in and out of positions at the price they want. On the other hand, the forex market is active 24 hours a day, as banks across the world are active participants during their hours of operations.
4. Abundance of Direct Access Brokers. In most equities and futures markets, most brokers do not provide traders with direct access to the counter party of their trade; in other words, traders have to give their trade to a broker -- who in turn adds a fee, and then passes it on to the party that actually takes the trade. In the forex market, though, online forex brokers typically are the counterparty to the trade. This allows traders to enjoy trading at a lower price. For active traders, this can end up resulting in significant savings over time.
These advantages are a big part of the reason why forex trading has become more common amongst individual traders over the past decade, and why its popularity continues to accelerate.
