Forex trading is undeniably one of the most popular trading instruments that we have nowadays. Curious traders-to-be tend to notice it first before venturing into other forms of trading. FX trading is the trade of one currency into another currency. The process is similar to exchanging your country’s money into another currency when you need it as traveling expenses abroad. It might look simple at first glance, but currency trading might be a tough game for beginners. A better understanding of the financial market is needed to be able to understand the process.
The Pros of Forex Trading
There are a lot of trading opportunities in the FX market because it is the largest global market and the most liquid one too. Currencies of different countries are being traded every day, 24 hours. With this high volatility, it is undoubtedly easy to assume that the market can offer potentially high gains at the end of every trading day.
In other financial markets, short selling can be a pain in the head. But this is not the case with FX trading. Currency pairs are being bought and sold in the FX market. Whenever the trader sells a currency, another currency is also being bought. Traders can also speculate on the movement of these currencies and gain a significant profit even if the value declines.
Leverage is available in currency trading. Leverage works its magic by letting the trader open a bigger trading position upon paying an initial amount called margin. Leverage is deemed advantageous especially to new traders who are trying to take advantage of the market but couldn’t do so because of the lack of capital. But one must be very careful when using leverage as this might become a disadvantage if not handled properly.
The FX market is known to be widely accessible and offers great flexibility to traders. With smooth transactions, you can set up a trading account very easily and start trading with as little as $50. Trading also happens 24 hours within the 5 days of the week. With that, you can say that it is easier to fit trading into your schedule.
The Cons of Forex Trading
Although volatility is good because market movements can bring more profit, it will be at your disadvantage if the market moves against your predictions. A sudden change attributed to the currency rates might be unprofitable especially for short-term profits.
Retail traders might find it hard to cope with other traders in the market who have more capital and experience than them. Remember that you are competing with huge financial institutions and market players like hedge funds and banks. Because they have more resources and more funds. They can trade in huge volumes, which gives them the edge that normal retail traders don’t have.
Forex trading happens in a decentralized environment. With an over-the-counter transaction, traders are at risk of many factors. There is only no regulatory body entitled to maintain the safety of traders and their trading capital. Given that currency trading is quite popular, there are frauds and scammers who are eager to victimize unsuspecting traders.
