d18 1 - Pros and Cons of Forex Trading

Pros and Cons of Forex Trading

Any business venture is a gamble that needs to be worked on carefully in order to succeed. You will experience losses at times, even after looking at all factors to ensure that they will guide you to the expected success.

Forex trading using the Elliott Wave Theory for instance is a great way of investing your money, but a tricky one too. It has its advantages and disadvantages, and they are what you should weigh in order to make the right decision when you are set to take this route of investment.

The Pros of Forex Trading

While you should also expect some risks when you venture into this kind of investment, you should focus on the many advantages that will help you succeed. They include the following;

Availability and Convenience – This is one of the most accessible markets that you can venture into as an individual trader. Registration is easy because you can create an online forex trading account in just three days, and with just$50 you will be in business.

You can use various brokerage companies online that will assist you to get market price in real-time. It’s a market that is operational on a 24/7 basis, and hence you can market across continents when the market is favourable.

Leverage–It is possible to make sizable gains from the resources that you invest. It will depend on the region you will be operating from though, because it will determine the profit margins that you will get, which will give you the leverage.

Has Potential forQuick Returns –The market moves fast with its deep liquidity. The characteristics plus leverage that forex traders have means that they can get their returns faster in this market than in any other.

Easy Selling–Currencies are sold in shares and that means when you buy one you will be selling another. When there are speculations that a currency is about to decline in value, it’s easier to sell it faster than wait to makelosses. In the process, you make money to buy another currency to make more profits.

Liquidity – The forex market is the largest globally in terms of volume. That means that there is more than enough liquidity for trading, more so when it comes to major currencies.

No Insider Manipulation of Prices – The stock bonds, and other commodities in the local market can be influenced by information from inside stakeholders of the assets. On the other hand, the control of the forex market is more centralised and participants are always sure of what to get in the money that they invest.

Limited Commission and Fees – When you are trading in things like bonds, mutual funds and equities, you will be exposed to expensive commissions and other hidden fees. It hence makes trading super expensive.

When it comes to currency markets the costs are is determined by bid-to-ask spread. It is the difference between buying price (bid) and the selling price (ask), and they are clearing displayed in real-time by the broker. It’s a great factor that makes forex trading one of the most transparent investment.

Simple Rules–Traders in other markets always need to follow their trading activities closely to understand the nitty-gritties of taxation. In forex trading, taxation rules are straightforward and so you will only need to understand them and work within them at all times, because they rarely change.

Automated Operations – In forex trading you can use the automated systems that alert you on any trading event that will affect your investment. There will be swings and shifts in the market that you have to keep yourself up to date with. When you have a system that alerts you on the shifts, you will always play safe and make more profits.

The Cons of Forex Trading

Even with the plethora of positives that this venture has, there are some challengers that can hamper your trading and reduce its success. Here are some of the negative factors that you need to be aware of so that you can trade safely.

Challenges of Small Traders–On the global forex platform, about $5 trillion is traded on a daily basis. The major part of that trading is done by major players like hedge funds, banks and other huge financial institutions. Their volume of trading therefore gives them the advantage of getting easy access to information and new technology that helps them to trade more and safer.

They hence can easily set prices to their advantage, and that becomes and oppression to small players who have to play by the set rules.

Volatility–Every market will show volatility once in a while, and forex trading isn’t an exception. The traders who usually hope to get short-term profits may be the main victims of abrupt and severe volatility that will lead to unprofitable trading strategies.

Less Residual Returns–There is the long-term value of trading in bonds and stocks because of the dividend payments as well as scheduled payments. When it comes to forex trading, the main aim is to get capital gains when the currencies appreciate in value.

Simple Regulatory Protection–This market can be referred to as over-the-counter market because trading is not done in the centralised exchange platform. There is limited regulatory oversight for that matter.

For this reason, traders who want to venture into this business should do due diligence and investigate the reputation of the brokers they are going to deal with. They should have genuine trading practices and when all is clear, they can sign up for accounts with them.

On the basis of the country that they are doing their forex trading in, the traders may have fewer rights to push for recourse when the brokers treat them unfairly.

Conclusion

Forex trading is a real venture that is accessible to all who would want to make money through the sale of currencies. It is also a flexible activity and lucrative because it’s done in a transparent manner in a free environment.

When you however take note of the inherent risks, you will do your trading comfortably and successfully. The risks are however in all other trading activities, but in forex trading you are offered opportunities to be a successful trader when you accept to familiarise yourself with the characteristics of the forex market.

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