Any form of trading will have the characteristic of having bad or great experiences for traders and Forex trading is no exception to this. People who look into trading binary options, CFD or Forex will always have situations where you need to make certain decisions in order to fully utilize it. We have broken down some of the disadvantages and advantages of getting into Forex Trading.
Advantages
Despite Forex traders telling you that there are bound to be losses and risks from trading Forex, binary options, or CFD, there will always be some form of pros that you may encounter that enables you to benefit in trading more.
Automation
Through the years, Forex Trading has progressed thanks to the advances of technology. Automated trading strategies have been one of the driving forces for people to take the plunge and go into trading. Thanks to brokers nowadays, they offer systems with studies and will give you an option to go about your trades through automated systems or even control your loss limits through a stop-loss order and even limit the prices when you advance in engaging a trade. Any trader with a very sound and well thought of automated strategy will have an advantage in terms of going through the forest that is the forex market without being required to exhaust your physical and mental capacities. It also frees up some of your time without losing touch on what’s happening in the market.
Leverage
By having access to this, you are able to make better gains with your trades as compared to not having any. A lot of people who go into trading maximize the potential of having sizable amounts of potential gains. Depending on where you are trading, some parts of the globe can offer as much as a 100:1 margin (or even more) for your initial capital investment for trading.
Liquidity
In terms of volume, the forex and CFD market is the biggest market globally. Logically, this means that there is enough liquidity for trading in this market. At brokerages, traders who are at the trading desks are given a lot of liquidity for trading as most of them are, taking up the alternate direction of trade when liquidity can be an issue in other sections of the market.
Accessibility
One of the great things about the Forex Market is its accessibility most especially for individual traders. Any person who is able to set up an account with a lead time of one to three days can start trading for as low as $50. Most trading brokers have their services online and any person with a good internet connection can have access to real-time prices from the market, tools, news and price charts thanks to the online trading platforms. With the Market open 24 hours a day during the weekdays gives you a lot of options with your schedules. This is a great option to have your investment grow while still doing your day-job.
The Cons
You were probably warned. A lot. Any trader can get him or herself in a bad situation thanks to the conditions and factors that will totally go against you as you get into this form of trading. These factors sometimes can look as if they are more of an advantage for you but will eventually start to make you realize how you can break your drive into continuing a successful trading career.
Small Traders at Some Disadvantage
With a huge amount of money being traded on a daily basis in the forex market across the globe, these are still overrun by mostly bigger entities like hedge funds, commercial banks and other financial groups. Because of their capability to trade by the volume plus huge access to information in the market, they are at a huge advantage and are able to influence prices at their own will. This is for most a very real situation and can be really experienced in forex trading.
Less Residual Returns
Most of the time, bonds and stocks are there to make long-term value in buying an asset. Yet, the concern in forex trading is it aims mostly at taking any capital gains for the appreciation of any one of two currency pairs. However, certain forex positions when kept can give interest, pay, or yield but it depends on the gap in the interest rates being practiced by countries. These are also sometimes called “carry” interest or rollover.
Volatility
Any market may have a certain amount of volatility. The Forex market is known to have such as and some traders who are gunning for short-term profits put themselves in a position of potentially fluctuating or extremely dipping market prices that eventually affect the trader’s transactions.
Lighter Regulatory Protection
Trades in Forex are not carried out in a centralized system and regulations are bound to have either an oversight or may not even have a proper ruling. When you get into Forex, you will have to make sure that you have the ability to investigate or do background checks on the broker’s services and reputation from traders. As a starting trader, you are highly encouraged to check which country the broker operates from and what are the ratings and experiences that their clients have.