Today, the forex market is no longer limited to banks and organizations. Even individuals can now become forex traders. However, before a person can risk everything he or she has into forex trading, he or she must take the time to know everything about it. Most importantly, a person must know some of the pros and cons of forex trading before totally committing themselves to it, so that they can discover if this financial market really suits them well.
Advantages of Forex Trading
1. Trading Hours
One of the most notable characteristics of the forex market is that it is open 24 hours a day from 5 p.m. Sunday ET to 5 p.m. Friday ET. This gives traders with various schedules the opportunity to trade during hours that are most convenient to them. On the other hand, other markets such as the stock market only have limited trading hours of 9:30 p.m. to 4 p.m. ET.
2. High Leverage
This means that traders get to profit a lot even with just a small amount of capital. Some markets even offer a leverage ratio of 50:1 or 100:1. This means that an investment can go as high as 50-100 times its initial value.
3. High Liquidity
Since the forex market is the largest market in the world, large volumes of transactions don’t make an immediate impact on the market. This means that no matter how much trader participation occurs during a trading session, the market still follows similar price patterns.
Today, forex trading can be done through various tools such as online platforms, automated trading software, and brokers. This is the reason why so many people are turning to forex trading.
5. Availability of Information
There are so many short-term and long-term indicators that help predict the movement of economies. Some of these indicators include political events, GDP, interest rates, inflation, capital markets, and natural disasters. Most of these are easily followed through various news outlets, social media websites, and economic reports.
Disadvantages of Forex Trading
1. High Volatility
The forex market is very volatile which means that values of currencies are easily affected by macroeconomics and politics. Traders also do not have control over such events that cause currencies to rise and drop, especially when the perceived stability of a country is very inconsistent.
2. High Leverage Risk
If forex trading allows traders to profit 50-100 times their capital value, this also means that traders can lose money by that much. This is why traders are recommended to open their trades at reasonable positions.
3. Lack of Transparency
Knowing that the forex market is not regulated, some brokers could take advantage of their clients by not giving the best prices or not providing pertinent information. This is why traders are recommended to deal with regulated brokers only.
The risks of forex trading can easily be avoided when done with the right strategy and information. There are also a lot of online platforms such as CMC Markets that help traders reduce the risks of forex trading. Ultimately, forex trading can be a good way of earning money as long as traders do it with caution.