Is Trading Forex A Good Idea?

Globally, financial markets are seeing a surge in investment interests across various instruments. The currency market or the global forex market place was once an exclusive trading territory for large-scale investors and corporations. There was no room or access for individual investors until now. As technology advanced, the foreign exchange market, or the forex market opened up to retail investors and made it possible to invest in different currencies to make the most of the movements in exchange rates.  

Forex trading is often considered a very lucrative option to increase your passive income as a trader. As tempting as that may appear, at no point does it mean ‘easy money’. Being the biggest and the most liquid market in the world, the forex market can be very engaging. However, a new trader must always remember that trading forex is certainly different from stocks or commodities trading. It’s a market that operates 24 hours five days a week and offers a lot of liquidity but despite these advantages in addition to the ease of access, pursuing a career in forex trading can be tricky. Read on to find out more:  

Benefits of forex trading

Millions of traders engage in the forex market and thus you will find numerous reasons to be a part of it. Let’s take a look at a few reasons:  

Accessibility

If you compare the forex market to other trading markets that operate online, it is much easier to access. It also requires a nominal initial investment, sometimes as low as $100 and if you are a patient investor, you can get started with a small amount. In order to grow in the forex market, you should be smart and consistent with your money as well as your trading efforts.  

Signing up for a forex trading account is also quite easy. All you need is a laptop and an internet connection to log into your trading account. Since there are many forex brokers who operate online, you can register to set up your online trading account, do the paperwork and add funds to your account in a few clicks. While accessibility is an important part of the forex market, it does not have a big impact on the trades.  

Flexibility

Unlike the stock market, you do not have to wait for an opening or a closing bell to start or stop trading in the forex market. Since the currency market operates across time zones globally, it is always functional: 24 hours a day from Monday to Friday. This becomes possible because of the numerous currencies that are traded in the market and an investor has the flexibility to pick from literally any of the forex pairs.  

Profitability

There’s hardly any doubt about the fact that the forex market is extremely profitable. Your investment could even grow up to ten times overnight! In the forex market in order to complete a trade, you have to exchange a currency for another. This is different from the stock market where your profit depends on the increase in the value of the stocks. However in the forex market, because it operates in pairs if one currency’s value is diminishing, the other is on the rise. It is simply a matter of skills and good decision-making to be able to trade successfully. 

Liquidity

The forex market is the biggest financial market in the world. Forex trading has a good reputation for offering great liquidity and a large part of this is possible because of the market’s size. This is a market where almost $2 trillion worth of trades is carried out every single day. Therefore you need not worry about entering or exiting a trade at a point where the prices are fluctuating a lot. These fluctuations have an impact both positive and negative depending upon the volume of trade.  

Under the standard market state, you can always buy or sell with just a click since there’s always someone on the other side of the market who’s willing to take your deal. 

The mammoth size of the forex market makes it very liquid. The world’s largest financial market, the forex market sees trades worth $2 trillion on a daily basis. You can invest and withdraw at any given point without being bothered about the price fluctuations. Buying and selling under general circumstances isn’t very hard because you are likely to find enough traders who’re interested in your deal.  

A few cons of forex tradingBefore you start investing in forex, take into consideration the disadvantages involved as well.  

Lack of Transparency

The forex market is largely deregulated. This means that even as a beginner you trade against experienced and even professional traders. As a market that is dominated by brokers, you cannot be sure of complete transparency. You may not be able to control how your trade orders are fulfilled and whether or not you’re getting the right price. The views you get on your quote could possibly be limited and depend on what your broker is providing you with.  

High Risk, High Leverage

You can avail high leverage in forex trading. This implies that the probability of earning profit or incurring losses can go up drastically from what you’ve actually invested. You may earn more with less capital but there’s also the risk of losing more than what you can afford to pay back. You should be cognizant of all that leverage may possibly entail, have a proper allocation of funds and be able to not act out of impulse in order to avoid losses.  

High Volatility

The forex market is extremely volatile as the price fluctuations are often due to macroeconomic conditions. It is easy to suffer losses as socio-political changes are beyond an individual investor’s control. If stock traders are incurring losses, as shareholders they have the option of pressurizing management or approaching regulators to come up with a solution. However, forex traders have no such alternative.  

Self-Directed Learning

Professional assistance and portfolio management are some very good options that stock traders have when they lack the knowledge and expertise required. Forex traders have no such choice and are completely on their own. The key to a successful forex trading career is learning constantly and not being intimidated by the losses when you’re starting out.