Forex trading is a burgeoning career choice for many people with a financial background – and even those without one – across a broad range of ages. There are many reasons forex trading has become an increasingly popular career choice. It allows traders to be their own boss, and it boasts easy accessibility, a 24/7 schedule and high liquidity. These are strong pull factors, but there are also other advantages of taking up forex trading as a career – and a few disadvantages.
Advantages
One of the major advantages of forex trading is that it has low costs, so the trader eliminates the potential overheads associated with equity or other securities. In forex trading, traders do not have to pay commission or brokerage fees. Any trader who has learned how to trade CFDs will know that CFD brokers, along with those who give forex advice, make their money from spreads between currency pairs.
Forex trading is also advantageous for part-time and full-time traders in subtly different ways. Part-time traders can log into any live trading market and start their dealings whenever they find a few minutes or hours to spare. It does not matter what time it is – there will always be a live market to trade.
Likewise, full-time traders can take advantage of the 24-hour trading window and use it to their benefit. When it’s daytime in one part of the world, it will be night in another area, allowing traders to engage at all hours simply by switching to the live markets that will be open at the time.
Thanks to the large numbers of people now involved in forex trading, forex markets are highly liquid, which means forex traders do not need to worry about closing trades. At any time, they can always trade different currencies without much hassle. The liquidity of the forex market also means that traders benefit from efficient pricing as the lack of high price deviations eliminates price anomalies and price manipulation.
The forex market is also devoid of regulators. Rarely do central governments interfere in forex trading, which helps reduce unexpected market developments. It also allows traders to take advantage of short positions, which is banned in certain security classes of other markets, and diminish costs. In addition, there aren’t any insiders in forex trading, so traders do not need to worry about losing large sums of money owing to insider trading, as is the case with equity markets.
Disadvantages
In some ways, lacking a central market benefits forex markets advantageously, but it can also work against them. The deregulated nature of forex markets means that traders operate in partnership with brokers. On some occasions, traders may not be furnished with all the details by the broker, especially in the cases of strained relationships. This means there is a possibility that the trader will lose money from unfulfilled trade orders.
Forex markets are based on global economics and global politics, two factors that are very difficult to predict and analyze. Therefore, it is difficult for the forex trader to come up with reliable information on what to trade on and what to avoid. The fact that forex markets are based on global politics also leads to high volatility as any major developments can have a strong impact on forex markets.
Forex trading comes with high leverage, hence high risk. On average, the leverage for the forex market is 50-1. This means that for every $1 that you trade, you stand to gain as much as $50. This is a good thing if you happen to gain the money, but if the opposite happens and you lose $50, the whole forex trading adventure could turn into a loss-making nightmare.