Forex Trading has become one of the most interesting and exciting trends in finance over the past few years. As with any other trend, there are undeniable facts that can explain its popularity.
But every new shiny thing also has a dark side. Being aware of these two facets will help you gain a more balanced view of Forex Trading. In this article, we will discuss its advantages and disadvantages.
The Advantages of Forex Trading
It’s accessible: you can literally open an account and start trading. It’s really easy to set everything up. You only need a dollar and an internet connection.
It can be learned: there are many stock simulators you can download for free, and you can start practicing right away. You can also read blogs to get updated information on current investment topics, like trading with bitcoins.
It can be leveraged: Forex positions are determined by a currency exchange, unlike the stock market which involves purchases. Forex transactions can be leveraged up to 1000:1 in some jurisdictions. There are limitations in other regions, to be honest, but they are mitigated.
Its profits are quick: once a Forex trade has been settled, you can access its profits immediately, unlike traditional trading.
Low trading costs: the trading costs for Forex are significantly lower than those of other markets. These costs can vary depending on the currency pairs but, in general, they do not represent a factor that requires much caution.
Less risk of market manipulation: given the size and depth of the Forex market, stock manipulation can be very difficult, even for large companies.
It can be automated: some programs allow you to automate your trading. This means that if you have developed strategies that follow patterns and can be executed automatically, you can use the feature to automate your earnings as well.
The Disadvantages of Forex Trading
It’s highly competitive: you are essentially competing with professional traders, large companies, banks, and hedge funds. In other words, if you want to succeed in this market, you’d better become an exceptional trader.
You need to be aware of everything: since you’re dealing with national currencies, you must have a solid understanding of macroeconomics and global events. That being said, your research skills must be extraordinary.
Few regulations: depending on the country you are doing business with, there may be little or no regulations in that jurisdiction. This could be a problem to consider in some countries.
Unknown currency valuations: the origin of currency valuations is not really transparent in the Forex market. This is certainly
a problem for traders who need to access this information before deciding to enter a particular trade.
Leverage risk: trading with leverage could amplify your losses. This may not be suitable for some traders who are more cautious or conservative with their investment capital.
It’s volatile: for traders who wish to invest in the medium or long term, this volatile market may not be their preferred choice. Trading is quite unpredictable, so constant forecasts must be implemented.
Forex Trading is certainly attractive in some respects: it is egalitarian, anyone can learn to do it, and the profits are simply enticing. But on the other hand, it is very competitive, lightly regulated, and highly volatile. Being aware of each of these aspects is essential in deciding whether this activity is suitable for you or not.
