1-Advantageous Transaction Cost
Commissions are a small account’s nightmare when trading futures or stocks, especially if your strategy involves scalping. You usually pay a flat fee, meaning that small accounts are at a disadvantage; you are far from break even when you enter a position.
Transaction costs are much more advantageous when trading the forex market for the simple reason that your fees are proportional to your position size, usually under the form of spread. It is possible, however, to encounter large spreads when trading minor or exotic pairs. That is why it should be implemented in your trading regiment to always verify the spread size before entering a trade.
2-Ease Of Going Short
Going short when trading stocks can be a hassle; your broker has to have available shares for you to borrow, you have to pay fees, and you have to buy them back to repay your broker. It can be intimidating to new traders, which is why they will probably choose to always go long.
When trading the forex market, going short is as simple as going long. You get the option to either buy or sell whenever you want to place an order. This means twice as many opportunities to apply your strategy.
The majority of stocks trade at a very low volume compared to most major and minor forex pairs. The forex market volume is around $5 trillion per day, versus $200 billion if you combine every stock market’s daily volume. How is that going to affect your performance? Because it means that your orders will be filled faster and at the same price, or close, to what you were expecting to pay.
When buying stocks, market orders can fill at a different price than you expected because of a gap or high volatility caused by the low volume.
Placing an order for a stock at $20 and being filled at $21 can make a tremendous difference, especially if you were expecting to scalp a few cents. Imagine if, after buying the stock at a more expensive price than expected, you sold the same shares at a lower price than expected. That’s a potential trade ruiner.
4-Easy Access To Margin
Day trading often implies quick movements and small profits compared to the size of your position. Does that mean you should expect very small returns if you don’t have $10K to trade? Not necessarily, especially if you trade the forex market. Most brokers allow you to use leverage and therefore exploit small price movements. It is very common to see margins of up to 1:500, meaning that you could trade volumes of up to 5 lots for every thousand dollars in your account.
Although I do not recommend oversizing your positions, certain traders can find value in high leverage, especially if they are scalping a few pips. It can also be useful to have some free margin in case you need to enter multiple trades.
Forex is traded through the interbank market. When a session closes, another begins or has already begun in another country, meaning that the market is open 24/7 for 5 days a week. Here’s what the rotation looks like (in Eastern Standard Time): the New York session starts at 8:00, the Sydney session at 17:00, the Tokyo session at 20:00 and the London session at 3:00. Certain sessions overlap each other.
How is that an advantage compared to the stock market, which is usually open from 9:30 to 17:00? First of all, it gives an opportunity to full-time job workers to actually get their feet wet in the live market. Most people can’t afford to quit their day job without actually testing whether or not trading may be appropriate for them. Secondly, the markets staying open also means that it is safer to hold your trades for longer periods of time; you are less at risk of overnight news causing a gap against you when the market opens.