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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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