No Commissions, No Currency Restrictions – Forex Traders Come Aboard!

By Sean Hyman

The spot Forex market does have a few advantages over options trading.

For starters, this market trades 24 hours a day from Sunday evening until Friday evening. So you can enter and exit a trade at pretty much anytime day or night. That’s definitely useful for both grabbing profits and cutting losses, because I don’t have to wait for the market to open in the morning. 
So the hours offer more flexibility. Also these contracts (which are called “lots” in the spot market) don’t expire. So as long as you have the margin to support the lots, you can keep trading for as long as you like.

You have almost unlimited currency trading flexibility. In fact, you can trade 20 to 30 currency pairs through most any spot FX broker. And you don’t have to trade these currencies against the dollar. You can trade what’s known as “crosses.”

A cross is any pair that is traded that doesn’t involve the dollar. Here are some common crosses that are traded for instance: EUR/JPY (Euro vs. the Japanese yen), GBP/CHF (British pound vs. the Swiss franc), EUR/GBP (Euro vs. the pound), AUD/JPY (Aussie dollar vs. the Japanese yen), etc.

You also don’t have to pay commissions on your Forex trades, like you do with option trades. However, your broker (or “market maker”) will still charge you the spread to place both your Forex trades and option trades. The spread is the difference between the buy and sell quotes, and brokers use it to allocate fees to clients.

Also, the spot Forex market has enormous volume going through these currency pairs. This not only makes the spreads small (i.e. you spend less on each trade), but it also makes the fills better than you will see in any other market, including options.

However, naturally there are a few disadvantages to trading Forex. For starters, you have to open a special Forex trading account to trade the spot Forex market, with a specific Forex dealer.
Honestly, that’s not difficult to set up, but it’s something to keep in mind. Also, like I said, Forex trading has its own language. So make sure you review your broker’s trading manuals before you dive right in.

And last but not least, you have to manage your risk in your account. This means don’t trade more than you can afford to lose, and keep tight stops because this market moves fast.
Speaking of moving fast, one thing that both of these methods have in common is that they are both leveraged instruments.

Leverage is often called a double-edged sword. It’s a benefit because it lets you shoot for big gains, but that means you take a bit more speculative risk with your investment assets. For example, when trading options, it’s possible to lose the premium you originally paid for your options contract.

When you’re trading spot Forex, you can lose anything above your stop that you place on the trade. However, you would determine that level depending upon your risk tolerance.

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