Benefits of Currency Derivative Trading

BENEFITS

• Low Commissions – Brokerage fees are very low as the market is highly competitive.
• No Middlemen – Standardized lot size – Futures/Options currency trading does away with the middlemen and allows clients to interact directly on the exchange platform.
• Standardized Lot Size – Low transaction cost – In the futures markets, lot or contract sizes are determined by the exchanges which are fixed in nature. This allows traders to trade multiple lots.
• Low Transaction Cost – The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. In large deals, the spread could be as low as 0.07 percent.
• High Liquidity – With an average trading volume of over $4 trillion per day, FOREX is the most liquid market in the world. It means that a trader can enter or exit the market at will in almost any market condition.
• Almost Instantaneous Transactions – This is a very advantageous by–product of high liquidity.
• Low Margin (3 – 5 percent), High Leverage – These factors increase the potential for higher profits (and losses).
• Online Access – The big boom in FOREX came with the advent of online (Internet) trading platforms.
• Interbank Market – The backbone of the FOREX market consists of a global network of dealers. They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and by telephone. There are no organized exchanges to serve as a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The FOREX market operates in a manner similar to that of the NASDAQ market in the United States; thus it is also referred to as an over-the counter (OTC) market.
• No one can corner the market – The FOREX market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short-lived. Thus central banks are becoming less and less inclined to intervene to manipulate market prices.
• No Insider Trading – Because of the FOREX market's size and non-centralized nature, there is virtually no chance for ill effects caused by insider trading. Fraud possibilities, at least against the system as a whole, are significantly less than in any other financial instruments.
• Limited Regulation – There is but limited governmental influence via regulation in the FOREX markets, primarily because there is no centralized location or exchange. Nevertheless, most countries do have some regulatory say and more seems on the way. Regardless, fraud is always fraud wherever it is found and subject to criminal penalties in all countries.