Pros and Cons of Currency trading in Forex market (Forex trading)
Forex trading stands for foreign exchange trading or currency trading, It is a global market, incredibly liquid, with an immense daily trading volume, Forex trading is the best career choice for many people with a financial background, It has become an increasingly popular career choice, it boasts easy accessibility, a 24/7 schedule & high liquidity.
Pros of Forex trading
Forex trading has low costs & high liquidity, therefore the traders eliminate the potential overheads associated with equity or other securities, The traders do not have to pay commission or brokerage fees, If they have learned how to trade CFDs, They will know CFD brokers, along with those who give Forex advice, and they can make their money from spreads between currency pairs.
Forex market is the biggest liquid market in the world, so, when you buy or sell an asset, it can’t cause a radical change in its price, Forex brokers earn the money on the spread – the difference between the asking price and the bid price, For many investments, Forex trading is not for the inexperienced traders.
Forex trading fits different trading styles, Trading currencies can fit various styles of trading, such as day trading, swing trading, or scalping, Forex trading has low capital requirement & leverage effect, due to tight spreads & margin trading, The currency pair traders can invest with a small amount of initial capital.
Forex trading is around the clock trading, Forex market is open Monday to Friday-24 hours a day, that enables the traders to trade around the clock, You can take the advantage of different time zones and their subsequent volatility that helps fit into the international trading schedules.
Forex trading is for part-time & full-time traders in different ways, Part-time traders are able to log into any live trading market and start their dealings whenever they find a few minutes or hours to spare, there will always be alive market to trade.
Full-time traders can take benefit of the 24-hour trading window and use it to their benefit, if it is daytime in one part of the world, it will be night in another area, allowing the traders to engage at all hours simply by switching to the live markets that will be open at the time.
Forex markets are highly liquid, So forex traders do not need to worry about closing trades, At any time, they can trade different currencies without much hassle, The liquidity of the forex market means that the traders benefit from efficient pricing as the lack of high price deviations eliminates the price anomalies & price manipulation.
Forex market is devoid of regulators, Rarely do central governments interfere in forex trading, that helps reduce unexpected market developments, It allows the traders to take benefit of short positions, that is banned in certain security classes of other markets, and diminish costs, there aren’t any insiders in forex trading, so the traders do not need to worry about losing large amounts of money owing to insider trading, as in the case with equity markets.
Cons of Currency trading
Forex trading has high volatility & high risk, Forex market is one of the most volatile markets in the world, Volatility is a source of profit, but it can also be a source of huge losses, as some macroeconomic events can cause unpredictable movements, High-frequency trading is also a very common trait of Forex market, increasing volatility.
You have to understand the currency market that is a very complex market, You have to learn about the currency market before you start trading, You should know about the different types of currency pairs (majors, minors, exotics), and that factors influence each one.
Forex trading can be affected be Leverage, Forex market is leverage-based, Leverage can increase your gains but it can also increase your losses, that can quickly exceed your initial deposit, Forex trading has a lack of transparency, The currency market is an over-the-counter (OTC) market, meaning a trade is done between two parties without any supervision of an exchange, such as a clearinghouse.
Lacking a central market benefits forex markets advantageously, but it can work against them, The deregulated nature of forex markets means that traders operate in partnership with the brokers, The traders may not be furnished with all the details by the brokers, especially in the cases of strained relationships, So there is a possibility that the traders will lose the money from unfulfilled trade orders.
Forex currency markets are based on global economics & global politics, They are very difficult to predict and analyze, So, it is difficult for the forex trader to come up with reliable information on what to trade on and what to avoid, The fact that forex markets are based on global politics leads to high volatility as any major developments can have a strong impact on forex markets.
Forex trading has high leverage & high risk, On average, the leverage for the forex market is 50-1, So for every $1 that you trade, you stand to gain as much as $50, This is a good thing to gain the money, but if the opposite happens and you lose $50, the whole forex trading benefit could turn into a loss-making nightmare.