Online trading has caused a major paradigm shift in investing. At the turn of the millennium, there are over 6 million online investment accounts, up from 1.5 million in 1997. As a result, start-up firms now compete directly with financial institutions to serve investors in the new Economy, and the clear winner is the customer. The competition between the brick and mortar institutions and the Internet-based companies has dramatically lowered the costs of investing, and empowered the individual investor to take control of their own investment strategy.
On-line trading will revolutionize the currency markets by making it accessible to the small and medium sized investor. For the first time, these investors have the ability to execute transactions of between $100,000 and $10,000,000 at the same prices the Interbank market offers for deals well over $10,000,000. This benefits both those who wish to speculate on the direction of the currency markets for profit, as well as the money manager or corporate treasurer looking to hedge against unwanted exposure to future price fluctuations in the currency markets. I am going to discuss the Benefits of Trading Forex.
Very few on-line brokers are able to offer their clients real-time bid/ask quotes, which facilitates instantaneous deal execution – no missed market opportunities. Real-time prices also allow investors to compare an on-line broker’s dealing spread with that of other pricing services, to ensure they are receiving the best possible price on all their Forex transactions.
Many on-line Forex brokers require their clients to request a price before dealing. This is disadvantageous for a number of reasons, primarily because it significantly lengthens the execution process from just a few seconds to possibly as long as a minute. In a fast paced market, this could make a significant difference in an investor’s profit potential. Also, some of the more unscrupulous brokers may use the opportunity to look at an investor’s current position. Once they have determined whether the investor is a buyer or a seller, they ‘shade’ the price to increase their own profit on the transaction.
Timing is everything in the fast-paced Forex market. On-line trades are executed and confirmed within seconds, which ensures that traders do not miss market opportunities. Even the incremental extra time it takes to complete a transaction over the phone can mean a big difference in profit potential. Introduction simply, executing trades electronically reduces manual effort, thereby lowering the costs of doing business. On-line brokers are then able to pass along the savings to their client base. The fast-paced nature of the Forex market compels traders to execute multiple trades each day. It is vital for each client to have real-time information about their current position in order to make well-informed trading decisions.
Access to timely and relevant information is critical. Professional traders pay thousands of dollars each month for access to major information providers. However, the very nature of the Internet affords users free access to reliable market information from a variety of sources, including real-time price quotes, international news, government-issued economic indicators and reports, as well as subjective information such as expert commentary and analysis, trader chat forums etc.
The main advantage of the Forex market over any exchange-traded instruments is that the Forex market is a true 24-hour market. Whether it’s 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading Forex so that investors can respond to breaking news immediately. In the currency markets, your portfolio won’t be affected by after hours earning reports or analyst conference calls. The ECNs (Electronic Communication Networks) exist to bring together buyers and sellers when possible.