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The Pros and Cons I Wish I knew Before Trading

July 12, 2019

 

Forex, similar to all other ventures, has its pros and cons. In this short article, we will go over 7 positive points, and around 2 major disadvantages:

When we talk about the Forex market, we directly think

 

1- Liquidity!

What is liquidity? It is s the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. An example of a very liquid asset is currency.

The Forex market can only be described as the most liquid market in the world, which plays in favor of speculators. Thanks its high liquidity, this market does not suffer from major slippage as opposed to trading small equities, stocks or even illiquid futures such as coffee.

2- 24/5 Trading

The markets never sleep – or so they say – the advantages of trading Forex is that it allows for 24-hour trading, which means that traders can react to changes almost immediately, given that the markets are subject to fluctuations due to a number of variables such as political news, economic changes, etc.

Being able to trade around the clock may help traders cut losses and allows them to make use of the various major markets, which are London, New York, Sydney, Tokyo and Frankfurt; located in five different time zones with overlapping sessions.

3- Trade More with Less

Traders can trade with more money than they have in their accounts. In other words, a trader with a small margin can trade a larger position, this allows the trader to increase his profits.

4- The Untamable Market

The Forex market is massive, it’s of such an amplitude that no one can actually manipulate it to its own advantage. You might think that central banks might have an impact on the Forex market, but think twice, even they have difficulty making an impact.

5- Major Accessibility

Thanks to its minimal requirements, the Forex market is open to anyone seeking to trade. Only a small deposit is required to kick off your trading adventure.

6- Commissions?

This is one of the most crucial questions that one might have: Will I pay commissions? Most brokers do not charge commissions and make profit from the dealing spread, which is the difference between bid and ask quotes (refer to our article on that particular subject).

New technologies such as the new Electronic Communication Network (ECNs) are currently offered by Forex brokers. They are known to offer better spreads, however, brokers charge commission per lot for using ECN as your executing system.

7- Endless Opportunities

Forex’s most attractive feature is the constant trading activity, which enables traders to make use of any movement in any major currency pairs.

Now what about the negatives?

We will only list two as they are the most instrumental ones.

1- Decentralization

Being decentralized, meaning having no one authority, and so the Forex market is in a way a private exchange. It is quite comforting to know that a regulated mechanism is watching/backing their activity.

The lack of centralized data means that Forex does not offer all the add-ons such as volume information (such as in the case of stocks and futures).

2- Two of One

Come to think of it, Forex works through currency pairs, which means that any exchange involves two countries, regions, economies. This renders it unpredictable, which might lead to various reactions to news and events.

Happy reading!

The Pros and Cons I Wish I knew Before Trading