A quick glance at the risks advantages and pitfalls of forex trading before taking the plunge
FX or foreign exchange is one of the largest financial markets in the world dealing with exchange of currencies of various countries. The currency exchange market has a larger number of sellers and buyers as compared to the other fiscal markets of the world. Forex trading has their major trading centers at London, Sydney, Frankfurt, New York and Tokyo and it is the only market that remains open 24 hours a day throughout the globe. This is one of the most famous speculation markets and is renowned for its huge volume and steady trading prospects. If you’re someone who has been dreaming of making money by trading the forex market, here are advantages and pitfalls you need to know.
What are the main advantages of forex trading?
- No commission: The traders who are dealing with the financial market on a regular basis, the traders and the investors are benefited by the ‘sans commission’ trading. This market allows its traders to keep a whole 100% of the profits that they earn from trading.
- High leverage: You can start from minimum 100:1 and this clearly implies that the forex market offers high amounts of leverage which means that you can produce hefty profits by investing a small amount of money.
- High liquidity: Most of the currency transactions include 7 main currency pairs, the global trading aspect helps such currencies show stability of price, narrow spreads, short slippage and high level of liquidity.
- Lucrative: The forex market is an over the counter market which means that the trader buys one currency and then sells off the other one in real time. There is no prejudice in the market and everyone has their equal share of profit.
What are the pitfalls of trading the forex market?
- High leverage: While high leverage seems to be an advantage, this can sometimes become a pitfall. Too high leverage will also include too high losses if not traded with the right strategy.
- 24 hours market: Although this is a convenient option, this can be a tough job too. This is because it won’t be possible for a trader to keep track of the currency changes throughout the day. This is when you might need a broker or some broker agencies like ETX Capital.
So, before taking the plunge into forex trading, pay heed to the pros and cons of this particular investment vehicle.