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Advantages and Disadvantages of FOREX Trading


Posted: 18th October 2016 14:00

Investing in FOREX online is becoming more and more popular among people wanting to become more financial independent: There's no boss, no set hours, no clients… just you, your computer, and your financial savvy pitted against the markets.
 
Even though it’s perhaps not quite as simple, if you’re disciplined, patient, and have a sound trading plan, you stand a good chance of succeeding.
 
Let’s see if the currency market is the right market for you:
 
Pros:
 
  1. Low cost and high liquidity. The FOREX market is the largest and most liquid market in the world, which means when you buy or sell an asset, it shouldn’t cause a radical change in its price. FOREX brokers, such as UFX.COM, earn money on the spread – the difference between the ask price and the bid price.      
  2. Fits different trading styles. Trading currencies can fit different styles of trading, such as day trading, swing trading, or scalping. It all depends on how often you plan to trade and how long you want to keep your positions opened.
  3. Low capital requirement and leverage effect. Thanks to tight spreads and margin trading, currency pair traders are able to invest with a small amount of initial capital.
  4. Around the clock trading. The FOREX market is open Monday to Friday-24 hours a day, which allows traders to trade around the clock. The ability to take advantage of different time zones and their subsequent volatility also helps fit into international trading schedules.
 
Cons:
  1. High volatility and high risk. The FOREX market is one of the most volatile markets in the world. Volatility can be a source of profit, but it can also be a source of huge losses, as some macroeconomic events can cause unpredictable movements. High frequency trading is also a very common trait of the FOREX market, increasing volatility.
  2. Understanding the currency market. The currency market is very complex. You should learn as much as you can about the currency market before you start trading. You also need to make sure you know about the different types of currency pairs (majors, minors, exotics), and which factors influence each one.              
  3. Leverage effect. The FX market is leverage-based. While leverage can increase your gains, it can also increase your losses, which can quickly exceed your initial deposit.
  4. Lack of transparency. The currency market is an over-the-counter (OTC) market, meaning a trade is done between two parties without any supervision of an exchange, such as a clearinghouse.



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