Probably one of the great, but very obvious, advantages of trading the FOREX foreign currency market is that this is passive income as opposed to earned income.

The beauty of passive income is that when you make money with your money it can make far more money per unit of time than you can working a job, or running a business. When you work for your money you are totally limited by so many factors that you're not exposed to when you have your money working for you.

Can you lose money trading currencies? Sure. But, that could happen anywhere: Regardless of how good I was at real estate investing, due to economic collapse I lost $1,000,000 net worth. Twice! But I had the skill to come back from that.

You may have an accident driving your car, but you take certain precautions to vastly reduce the chances of that happening. You can do the same in trading currencies in the FOREX market, though with the greater benefit of having less risk than real estate — or even driving a car!

There are 7 major reasons that I now trade currencies, and why I have said many, many times on other blog posts, and in my videos on YouTube for Longwood Currency Trading that I wish I had known this stuff when I was 25 years old.

On the Currency Trading page of Longwood Currency Trading, I list out the advantages of trading currencies in the FOREX market. See what you think....

For those reading this post who may not be familiar with some of the references in that list, I'd like to go into detail on each item and explain its significance.

All financial markets, whether that be stock markets, futures, commodities — or even food markets — have 'regular business hours'. In the case of these financial markets, they all tend to be open 5 days a week from around 8:00 am local time until around 5:00 pm when they close.

This differs from the FOREX market. Because the FOREX market is an international market there are no 'regular weekday exchange business hours'.

The FOREX market has to be open 24 hours a day because if someone in Tokyo wants to buy American engine parts, they have to convert Yen to Dollars. They do this on the FOREX market. But because 10:00 am in Tokyo is 9:00 pm in New York, the FOREX market has to be open to facilitate this.

And that's why the FOREX markets are open 24/5, i.e. from 5:00 pm Sunday New York time through until 5:00 pm Friday evening. That is: the FOREX market is open 24 hours a day, 5 days a week whereas all other markets are only open during 'regular weekday exchange business hours'.

Because the FOREX market is open 24 hours a day, traders are active — somewhere in the world — 24 hours a day. As a retail trader, we can thus trade anytime we want to — we don't have to wait for 'regular weekday exchange business hours'. If we want to trade at 3:00 am U.S. ET, then we can do it, and we'll find a market open in which we can actively participate in.

That is a tremendous advantage for us as traders: to be able to trade when we want to trade rather than only during 'regular weekday exchange business hours'.

Think of it: If you work a full time job and have to be on the road to work at 7:00 am and won't get back home until after 6:00 pm you would only be able to place pending orders in the stock, futures, or commodity markets. But you can place market orders at any time in the FOREX market.

You might have to get up a little early to trade from 5:00 am until you have to be out the door, but you can trade!

There is no way of knowing, for example, that the Controller of ABC Company has been counting as full sales income earned when half of those funds are to be expensed back to a vendor — as was the case of a famous instance of just that. The news came suddenly without warning, and the stock of that company immediately plummeted, wiping out thousands of investors capital.

Oil related company stocks crashed so badly that many had to go into receivership when the full scope of the effect the COVID-19 pandemic was having on the travel industry shocked the sector suddenly. The balances of so many retirement funds that were heavily weighted in these so-called 'stable' company stocks basically evaporated in something like 12 days.

During the mortgage crisis that cumulated in the 2008 financial melt down, the unthinkable happened: Most of the major banks, and financial centers in the U.S. were on the brink of default, and many, in fact, failed causing the worst economic crisis the U.S. had experienced since the Great Depression of 1929.

I could, of course, go on for pages....

Though the FOREX currency market reacts to sudden news like this as well, the fact that pricing is based on the overall economy of each of the pair countries, those sudden news announcements are minor blips in contrast to the huge scope of those economies.

Because there is so much liquidity in the FOREX market, disruptive news is dissipated over such a broad spectrum of issues that only things such as an event like 9-11, Brexit, the 2015 Swiss National Bank shock on the currency markets, the COVID-19 pandemic, etc. which affect all of the aspects of an economy can really cause dramatic and very sudden price moves — events of this magnitude are so rare that they may affect the FOREX market once in 10 or more years.

What this all means is that because of the huge scope of the FOREX currency market, sudden, specific news of an event is most likely to be easily absorbed with effects distributed so widely over the market that individual currency pair movement is little affected.

What this means is that if you bought a stock, for example, at $25.00 a share and placed a protective sell order at $20.00, that stop may not be respected if the market gaps down from its current level of say $33.00 to $10.00. This would leave your account with a $15.00 per share deficit, most likely triggering a margin call. And if you can't come up with the money to cover, you could lose your house as the broker moves against you to recoup its losses.

Because the FOREX currency market is so huge, with enormous liquidity, though large price moves occur, there are sufficient orders over a huge swath of price that execution is almost guaranteed. Though gaps can, and do occur on 5 minute and shorter time frames, again, because of the huge liquidity of the market, price will usually retrace as those orders are fulfilled.

Gaps in most all other financial instruments usually do not back-fill, and the losses remain for the unlucky investor holding positions on the wrong side of such a move. Stories abound about futures and commodity traders being totally wiped out to the extent of losing not only their investment funds, but everything they own. This is because of the high leverage and sometimes low liquidity of these instruments.

Gaps in the FOREX market are rare, and usually limited to the shorter time frames, which mostly recover simply through the massive number of orders that exist of a broad spectrum of price action.

We've all heard of events like this happening multiple times a year in the stock markets where, for example, if the DOW tumbles 10% based on the previous day's closing index value, trading is suspended. In the futures and commodity markets, similar lock limit rules exist, and they happen all the time — these are not isolated events in these markets as they might be in a stock market.

There are no lock limits in the FOREX market. There don't have to be: the FOREX market is so huge that there are always sufficient orders to absorb large price swings. In addition, because the FOREX market is a distributed market, i.e. there is no central clearing house such as stocks have in the New York Stock Exchange, how would you shut it down? You couldn't....

You'd want to be able to do this, i.e. sell short, if you felt the price was going to continue going down. But you can't execute your sell short order until the price ticks up....

There is no such rule in the FOREX market. You can sell short any time.

What liquidity means is that when you want to enter or exit a position, you need someone to take the other side of the trade. The more activity in a market, the more liquid it is, i.e. there are sufficient market participants that any order put into the market has someone willing to complete the transaction.

If you don't have that liquidity, your order may not get filled.

That could be deadly. Say you have bought 1000 shares of XYZ company at $20 a share for $20,000, but only putting up $10,000 with the broker carrying the balance as a loan — a lot like buying a house, except the broker will only loan half the purchase price.

Let's say you're looking for it to go to $25, a $5 gain. That would net you a nice profit of $5,000: a return of 50% on your actual $10,000 risk. To protect yourself if the price goes down $2, you enter a standing stop loss order at $18.

But suddenly, news flashes that XYZ Company is having all its real estate and machinery foreclosed on, basically sending the company to bankruptcy if it can't resolve the issue. The public panics, and everyone starts heading for the doors, selling XYZ as fast as they can.

The problem here is: Just who wants to buy XYZ if it's going bankrupt?

Answer: No one. NO—one.

And what happens to the price if no one wants to buy it? It plummets further and further down until someone wants to buy it.

But who would want to buy it — at any price?

NO—one.

And so the price goes through your 'protective stop' at $18 like shit through a goose.

That means you're not out of your position. You still own it, but the price is now at $12 and falling like a bag of rocks.

You're down $8,000 with no bottom in sight. And just to make things even more interesting, if this keeps up the broker will force sell you at market, or whatever price they can get, and you'll own them just a ton of money — even if that amount is more than you risk. In fact, if the price goes to 0, you'll owe the broker $10,000 and you'll be out $20,000: 100%

All because there was insufficient liquidity in XYZ Company to take you out....

However, once you're in a trade, it's up to the broker how much leverage you can have. There's a limit to that, of course. Again, U.S. Security law says the max carrying leverage a trader can have is 50 to 1, or 2%.

To execute a trade, you need to have 5%, but to carry the trade, you only need 2%.

To keep it simple: Let's say you have a $10,000 account so that you can trade 1 full lot of currency of $100,000.

You want to trade 1 lot of GBP/USD which is at a current price of 1.1500. Thus, you'll need 5% of $115,000 or $5,750 as margin to make the trade.

But you'll only need an account balance greater than 2% of the currency value (say at a price that has fallen to 1.1100 or $2,200) to maintain the trade before you get a margin call from the broker. [*** it's, of course, far more complicated than that, but that's the rough picture to give you a basic idea of how a broker could have their policy.

The FOREX market will let you play with less down, and less balance than any other financial instrument. And because of the enormous liquidity of the currency markets, it is highly unlikely that you wouldn't be able to exit a trade that's going against you long before you'd get a margin call — as long as you take an immediate loss when things start to roll over.

Key FOREX Market Advantages

• Economics of Entire Countries
• Enormous Liquidity
• Tremendous Leverage
• Open 24/5
• No Negative Trading Rules