The Pros and Cons of Forex trading
One of the most popular forms of trading right now is undoubtedly Forex (FX) trading. Simply put, this is the act of trading one currency for another, in pairs. If you like the sound of Forex trading, and want to enter the market yourself, it’s important to analyse the pros and cons, before making your debut.
We’ve done the leg work for you and pulled together some of the most important advantages and disadvantages of Forex trading, below. Read on to find out more.
The Pros
- As the Forex market is one of the largest global markets, there are usually many opportunities for liquidity in trading, particularly in major currencies. With the volatility of the market at an all-time high, the sheer volume of units and money that are being traded at any one time is huge, offering out a higher potential for making a significant gain on your capital.
- Short selling in the Forex market is a lot simpler than in a lot of others, where borrowing assets and expose to risk are required. The currencies are bought and sold in pairs, which means that whenever a trader buys in one currency, they will be selling in another. Here, traders can speculate that a currency will decline in value, meaning that they will only have to sell in one currency to buy another, with no borrowing involved.
- Having access to leverage can make a great difference between making small gains and considerably larger ones. Resources to help you utilise this leverage in the Forex market are more readily available when making foreign exchange trades.
- Due to the above points, amongst others, there’s a real potential for fast returns in this market. With the higher leverage opportunities, returns appear to be higher with Forex trading, whilst other markets will require you to wait longer for organic asset value growth.
- The Forex market is one of the most accessible markets out there, especially for individual traders. You can set up an account within one to three days, and begin trading from just £50. Trading online and 24 hours a day/5 days a week, forex trading can easily fit into any trader’s schedule.
The Cons
- All trading markets will show volatility at one time or another, but the FX market seems to lend itself a little more than the rest. A sudden change in exchange rates can leave your previous trading strategies unprofitable, making it sometimes difficult to make a short-term profit.
- Smaller traders may find themselves at a slight disadvantage. The majority of trades that are made are done in bulk, by major trading players such as banks, hedge funds and other large financial institutions. Due to the volume of their trading, and greater access to more information and technology, larger businesses will naturally have an advantage when trading.
- Trades are made over-the-counter, meaning they are without a centralised exchange. Because of this, there are far fewer regulations and traders are left to do their own due-diligence when it comes to investigating a broker’s reputation and trading practices, before you make the decision to sign up with them. There’s a lot more ground work to put in before you can safely operate in the Forex market.
Regardless of any cons or disadvantages, Forex trading remains to be a highly popular way to trade. Any risks that you may come across in this market, are no different to any other, so don’t let that put you off dipping your toe in the Foreign Exchange market. As long as you’ve done your research, and know what you’re getting yourself into, Forex trading may well be the perfect new investment adventure for you.
