Advantages of forex

Although the forex market is by far the largest and most liquid in the 

world, day traders have up to now focused 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.

1. Bid/Ask Spread rates

Spread rates have tightened dramatically in the last years. Most online 

forex brokers offer a spread of 5 pips on EURUSD which is the most 

widely traded and liquid currency pair. ACM offers a 3 pip spread on 

EURUSD. In stock trading, only liquid stocks offer tight spreads. Those 

spreads often represent on average between 0.04% and 0.06% of the 

value of the stock. In comparison ACM offers a 3 pip spread on all major 

currencies, this equates to approximately between 0.02% and 0.03% on 

the underlying dollar value.

Exact percentages at current rates 

EURUSD 3 pips 0.03%

GBPUSD 3 pips 0.03%

USDJPY 3 pips 0.023%

USDCHF 3 pips 0.018%

In the futures market spreads can vary anywhere between 5 and 9 pips 

and can become even larger under illiquid market conditions (which 

tends to happen substantially more often in futures currencies).

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.