Forex Trading: Pros and Cons




Pros and Cons of Trading Forex

Positives

The forex markets are the largest in terms of daily trading volume in the world and therefore offer the greatest amount of liquidity.3 This makes it easy to enter and exit a position in any of the major currencies within a fraction of a second for a small spread in most market conditions.

The forex market is traded 24 hours a day, five and a half days a week – starting every day in Australia and ending in New York. The wide time horizon and coverage provides traders with many opportunities to make profits or cover losses. The main forex market centers are Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo and Zurich.

The extensive use of leverage in forex trading means that you can start with little capital and multiply your profits.

The automation of the forex markets works well for the quick execution of trading strategies.

Forex trading generally follows the same rules as regular trading and requires much less initial capital; Therefore, it is easier to start trading forex compared to stocks.

The forex market is more decentralized than the traditional stock or bond markets. There is no central exchange controlling currency trading operations, and the potential for manipulation – through inside information about a company or stock – is lower.

 

Negatives

Although it is the most liquid market in the world, forex trading is more volatile than the regular markets.

Large amounts of leverage have unexpectedly bankrupted many traders.

Banks, brokers, and traders in the forex markets allow for a large amount of leverage, which means that traders can control large positions with relatively little money. Leverage in the 100:1 range is not uncommon in forex. The trader must understand the use of leverage and the risks that account leverage offers.

Productive currency trading requires an understanding of economic fundamentals and indicators. A currency trader needs to have a thorough understanding of the economies of different countries and their interrelationships to understand the fundamentals that drive currency values.

The decentralized nature of the forex markets means that they are less accountable to regulation than other financial markets. The extent and nature of regulation in the forex markets depends on the trading jurisdiction.

The forex markets lack tools that provide regular income, such as regular dividend payments, which can make them attractive to investors who are not interested in exponential returns.

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