Forex currency trading (Foreign exchange) basics, advantages and disadvantages
Forex trading market offers high liquidity, 24/7 schedule & easy accessibility, It is the greatest market in the world in terms of the total cash value traded, any person, firm or country can take part in this market, There isn’t a central marketplace for the currency exchange, It comes with very low costs, You can not find commissions or fees, most forex brokers make profits from the spreads among forex currencies.
Forex (FX) advantages
It is known as FX, currency trading or foreign exchange, It is a global market where all the world’s currencies trade, Forex transactions occur on either a spot or a forward basis, There isn’t a centralized market for forex transactions, They are executed over the counter & around the clock, When you’re buying or selling the currency of a particular country in the forex market, there’s no physical exchange of money from one party to another.
It is the market in which the currencies are traded, It is the largest, most liquid market in the world, with average traded values that can be trillions of dollars per day, It has all of the currencies in the world, It is unique for several reasons, mainly because of its size, Trading volume is generally very large, It is used to work in monetary & financial responsibility.
The global foreign exchange market is open 24 hours a day, five days a week, except for holidays, and the currencies are traded worldwide, some spot trades can take as long as six days to settle, Funds are exchanged on the settlement date, not the transaction date.
A forward transaction is any forex transaction that settles for a date later than spot, The price is calculated by adjusting the spot rate to account for the difference in interest rates between the two currencies, The adjustment amount is called forward points that reflect only the interest rate differential between two markets, They are not a forecast of how the spot market will trade at a date in the future.
Forex market runs all day, that enables the trades at one’s convenience, It benefits short-term traders who tend to take positions over short durations, Few traders make the trades during complete off-hours, You can easily start forex trading with a small amount of initial capital, it may not be possible to trade in other markets.
Forex market has the largest number of market participants, This offers the highest level of liquidity, So, large orders of currency trades are easily filled efficiently without any large price deviations, This eliminates the possibility of price manipulation & price anomalies, thereby enabling tighter spreads that lead to more efficient pricing and you can observe similar price patterns throughout the non-stop trading.
It is very easy to start in the forex market, There are hundreds of forex technical indicators for short-term trades, and many fundamental analysis theories and tools for long-term forex trading, creating enormous choice for the traders with varying levels of experiences to make a swift entry into forex trading.
Forex market offers a lot of flexibility to the traders & businessmen with respect to trading goods and services, There is no restriction on how much currency to be used for trading, there aren’t too many regulations & rules in the market to be followed by the trader, It can operate 24/7 across all country in different time zones with no problem at all, People can find this option as a part-time job because of its flexibility of time and work.
You have complete control with respect to making a trade, Forex market is big in size, It offers information easily to the public about its rates & current forecast, A lot of options are available in the Forex market, The businessman or traders, importers & exporters can use a wide variety of Forex trading market, So, forex market offers a lot of variety to its investors to trade by keeping in mind the budget & risk-taking factor.
Forex market offers a lot of options but it has a low cost investing compared to other means of investment, It’s a reasonable factor of trading and investing, Forex exchange trading offers a high leverage, That levers their investment and trade in the foreign exchange market.
The investor can switch to another currency easily if that person finds profit or a good investment in that, There is a lot of risk factor involved in investing money or capital in forex market but volatility offers higher profit by switching over one currency to whichever gives a good return, This ultimately offers a good benefit to decrease the risk factor & increasing profit.
Disadvantages of Forex market
The forex market cannot be fully transparent, Due to the forex market dominates by brokers, You can trade against the professionals, The trader can not have any control on how his trade order gets fulfilled, He can not get the best price, or may get limited views on trading quotes as provided only by his selected broker, The market may not work under the regulations but it may work under the activities of a broker.
The forex rates are affected by global politics or economics, So, it is difficult to analyze the information and draw reliable conclusions to trade on, Most forex trading depends on technical indicators, So, there is a high volatility in forex markets, When the technicals are wrong, it will result in a loss.
Forex trading market is available on high leverage, So, you can get profit/loss exposure multiple times of the trading capital, While a trader can benefit from leverage, a loss is magnified, There are many scammers who are ready as foxes drooling to loot the money from the investor, So the investor has to be very careful about identifying a trustworthy & reliable person.
The trader is able to seek professional assistance from portfolio managers, trade advisors, and relationship managers, Forex traders are completely on their own with little or no assistance, it is difficult to regularly monitor prices and volatility in the 24/7 markets make.
The traders experience a set of trades which they win and fail to realize that they may lose the next trade, At this moment the level of overconfidence arises with an individual and he fails to realize that he may not always win.
You should have adequate knowledge about how the market works so that you have to take some classes or courses to know the in & out of the foreign exchange market, You should get educated before entering this market or you have to bear heavy losses in the future, You should be mentally strong & well educated to invest your money smartly, as fear makes trading difficult, This drawback can be overcome by selecting a brokerage that has a perfect knowledge.