Forex Trading Pros And Cons – For the many traders who ditch the 9 to 5 office grind, the freedom, and autonomy that comes with this switch are life-changing. Gone are crowded rush-hour train cars, managers looming over shoulders, and restrictive firm policies. But with this release of certain stressors comes new ones.
While forex trading offers many new freedoms, don’t think for a minute that that means it’s an easy job. It’s far from it. With personal freedom, comes a lot more responsibility and the need for serious self-discipline and determination. Only traders who are able to stay on top of the craft day in and day out will be in a position to successfully trade on their own for a living.
Table of Contents
let’s break down the advantage of forex trading
One of the big advantages of Forex is that the trading costs are very low, low spread and commissions.
In addition, the Forex trading platform is provided to the trader at no cost by the broker, as opposed to trading in stocks.
As opposed to an office-based firm, the forex market is open 24 hours a day. Traders can work at hours that are convenient for them while self-determining the trading frequency.
no daily gaps, more suitable to a long and medium trader.
No matter if you are a long or medium-term trader, Forex is suitable for everyone.
Because the Forex market is continuous and opens 24/5, there are almost no gaps.
The Forex market is one of the biggest markets relative to the other markets.
It is estimated that the forex market has been traded about 5 trillion dollars a dayThe liquidity in the Forex market is very high, so traders in the Forex, usually, get the deal at the price they asked.
in the forex market, the volatility, which is the daily Percentage change is very low compared to the stock market.
the average daily change in the forex market is between 0.3% to 0.5% for a day.
The entire operation of trading forex boils down to trading pairs. While this may seem like a limitation on what you can trade, the reality is that there are many pairs you can trade which in turn creates a ton of variety in the market.
Low Capital Requirements
In the Forex market, trading accounts can be opened in a very small deposit relative to the other markets.
Forex brokers now allow you to open a trading account even at only 100$.
another option for forex traders, which is to trade forex via proprietary trading programs that start from around 250$, like the5ers, all of the capital will be provided for you. This means traders trading for the firm don’t risk their own money and therefore trade risk-free.
The forex market is open 24/5 around the clock. This means that if you’re disciplined and can establish a rigid schedule to work from, this benefit is a nice change from most jobs that require set hours regardless of whether they work for your personality or not.
When you trade with a forex account, you set your own hours. Since the forex market is always open for trades, you can be too. If you’re a night owl and like to trade after midnight, so be it. You find a schedule that works for you and the forex market will work around your hours.
The advantage of leveraging is that with a little account you can make a lot of money.
Leverage in forex is given in proportion to the trader’s available securities capital deposited in the trader’s trading account. For every single dollar, you have free for trading, the broker will let you use multiples of the market value.
For example, if you have $10,000 in your forex account, and the broker set your account with a leverage of 100:1, you would have a potential market value of $10,000 X 100 = One million dollars position value. Every dollar you put in the market, the broker will multiply your buying position and give you 100 dollars.
A great safety feature in the forex market is that there is always the possibility to invest the other way. In brief, to short sell.
Well, actually there is no such thing as shorting in the forex market.
Let’s say you want to short Eur/USD, so you’ll actually be buying the dollar and paying euro. This is short for buying the euro and selling USD. Since it’s commodity versus commodity, you can always go the other way around.
In most advanced markets, short selling is possible but in times of crisis, countries or the exchange management will limit the ability of short selling.
Technical analysis will be more reliable in forex compared to other markets, because of the high trading volume.
For example, support and resistance levels can be determined using technical analysis tools. If you are going for a long position, you should set the stop-limit order near the support level, On the other hand, if you are going for a short position, you should set the stop-limit order near the resistance level.
While in the stock market and the bond market, it is easier to manipulate stocks, especially small and medium stocks, with little trading volume.
In the forex market, this is almost impossible, because of the large volume of trading in currencies.
Forex trading is well adapted to automated trading strategies. This is great for traders who like to set and wait, allowing their preprogrammed algorithm to buy and sell pairs as they planned.
let’s break down the disadvantage of forex trading
Even though we highlighted leverage as a positive earlier, if too much is used, it can quickly become disastrous. In forex, it’s common to give away huge leverage in exchange for the money an investor invests. In many countries, it’s easy to receive 50 to 1 with a security deposit to cover the potential loss that may incur in your investments. It’s not actually for the holding of the assets (we’re buying contracts, not actually owning assets remember?).
It’s very easy to get very high leverage and the numbers can vary from 25 to 1, all the way to 4000 to 1.
This is another one that we touched on in the pro section but the reality is the foreign exchange market still lacks regulation in many countries (but slowly more countries contain regulation in the field).
Today, most brokers operating are regulated under a strict system, with all the major regulators providing very harsh enforcement of protective rules.
But the reputation that it’s not considered safer for investors still thrives. There are occasional events where brokers go bankrupt but these days, regulators protect funds and the deposits of investors.
the rules regarding forex trading are different from country to country. If you live in a country with restrictions on forex trading, you will be limited in what you’re legally allowed to do on your own.
If you’ve read up to here, you might be thinking “but some things are listed as pros and cons?!” It’s true, they are but it’s because it’s ultimately up to you how you will use the tools given to you. Use leverage wisely and it can be your friend. Overuse it and it’ll sink your account.
The same goes for regulation or the lack thereof, When you switch to trading forex, these things are all up to you. There will be no magic voice telling you how or why you should do something. Therefore it’s best to study all of these tools and formulate an ironclad plan for how you’ll be able to utilize them on your way to a lucrative trading career.
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