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Advantages and Disadvantages of Forex Trading
Foreign Exchange, Forex or FX is one of the world’s largest
financial markets dealing in real-time exchange of currencies of
different countries. This currency exchange market has a greater
volume of buyers and sellers, than in any other financial market
of the world.
With major trading centers at Sydney, London, Frankfurt, Tokyo and
New York, Forex is the only financial market, which is open 24
hours a day, 5.5 days a week, across the globe.
One of the most popular speculation markets, Forex is a market
well known for its huge volume, superior liquidity, as well as the
steady trading prospects. Also attractive is high levels of
Leverage, one of the unique features offered by the Forex market.
Advantages of Forex trading
High leverage
Starting from a minimum of 100:1, Forex markets offer its traders
with huge amounts of leverage which means that fat profits can be
produced by investing small amounts of deposits.
No commission
If dealing with a financial market on daily basis, the regular
investors or traders are the ones who are really benefited by the
“free of commission” trading. The currency trading market lets its
traders keep a whole 100% of their trading profits.
Superior liquidity
With most of the currency transactions comprising of 7 main
currency pairs, the huge volume and the global trading aspect
helps these currencies exhibit price stability, little slippage,
narrow spreads and high levels of liquidity.
Profitability
Being an over the counter market, the trading done at Forex can be
known as “over the counter” trading, wherein, a trader always buys
one currency and sells of the other one in real time. There is no
organizational prejudice in the market and every investor has the
equal prospects for profit in it.
24 hours trading
Forex currency trading market offers its traders with a 24 hour
trading opening, wherein, a Forex investor can trade ant any time
of the day, whatever suits him/her, as the market is open for
trading 24 hours a day, from Sunday 5:00 pm (ET) to Friday 4:30
pm.
This gives the Forex traders a choice to opt for timing for the
trade according to their convenience.
Disadvantages of Forex trading
High Leverage
While high leverage serves as an advantage to attract traders to
the market, it can at times also act as a disadvantage for them.
With such high levels of leverage available to traders in the
Forex market, comes an equally high level of danger.
This can be true for the high stake positions which carry along
with them, too much risk, leading to margin calls. This is where
efficient money management comes into play for playing safe.
24 hours market
Although it is convenient for the trader to trade whenever it is
suitable to him, it can be a rather tough job too. This is
because, at times, it is not possible for an individual trader to
keep track of the Forex market, 24 hours a day.
This is where a broker comes into the picture. Retail or
individual investors should try taking help from a professional
broker rather than doing all the dealings himself straight with
the huge market.
The broker will be an experienced professional who will act as an
equal in your transactions, keeping you informed and updated about
minute to minute details and fluctuations, and even guide you
about the conditions, when to and when not to trade in the market.
Like every other financial market, Forex market also has its share
of advantages and disadvantages. But keeping in mind the two can
surely help a trader become more vigilant and aware of what to
expect while trading Forex.
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