The top Pros and Cons in the forex trading industry

Share on facebook
Share on twitter
Share on linkedin

BLOG OUTLINE

Pros

  • Easily accessible

  • Global market

  • Leverage options

  • Volatility and liquidity

CONS

  • High degree of leverage.

  • Commission costs for brokers.

  • Need for education about forex trading industry.

     

BLOG INTRODUCTION

Forex is a global currency exchange that serves as a bridge between the currencies of the different countries by enabling their conversion into each other. Forex trading allows traders to get involved in an exciting, fast-paced and highly profitable world of international currency trading. However, before thinking about opening a forex account and starting to trade, you should take into consideration the pros and cons of trading in the forex market.

In this article, we’ll look at a few different ways that forex trading is different from other forms of investing, as well as how it can benefit you. We’ll also look at some of the drawbacks to forex trading, such as the risks involved.

 

Ease of accessibility

One of the biggest differences between forex trading and other forms of investing is the ease of accessibility into the forex market. Unlike many types of investments, you don’t need thousands or even millions of dollars to start trading in this market. You can start with as little as $100 if you know where to look for it. That means that even if you’re on a tight budget, you can still make some money by trading in the forex markets.

 

Global Market

Forex Market is a global market traded all over the world

You can trade anywhere, anytime. You can trade 24/5, five days a week. As it is a huge market and many traders are trading, it means that there is always liquidity in the market which means you will always be able to buy or sell your currency pairs easily.

When you are trading in Forex Market, you have many options to choose from more than 50 currency pairs. Most brokers will offer you some major currency pairs so you don’t need to worry about not having enough options.

As the Forex market is huge with many traders and liquidity, this also means that there will be less price manipulation and the prices quoted by your broker will be very close to what the interbank rate is.

 

Leverage Option

One of the most compelling reasons why people choose forex trading is because of the leverage options. Leverage allows you to borrow a sum of money from your broker to increase the overall size of your trade, and thus increase your potential profits. Like everything in life, there are pros and cons to using leverage when trading.

Some brokers offer up to 400:1 leverage on some trades, which is great if you can manage your risk effectively. Let’s say you have a $500 account and you want to trade with 1:100 leverage. This means that for every dollar invested, you can trade 100 dollars worth of currency.

So if you decide to invest $50 on an open order, you will actually be trading $5000 worth of currency. With a 1% movement in your favor, this would equate to a profit of $50! However, it’s important to note that this also works against you too; if the market moves against you by 1% you would lose $50, so knowing how and when to use leverage is key.

 

Volatility and Liquidity

One of the many pros of forex trading is how much it gives you in terms of access to liquidity. Liquidity refers to how much there is on the market for buying and selling at any given time. There’s a lot of money floating around, so it’s much easier to make a transaction with forex than it is with stocks.

Volatility is another pro. Forex markets are very volatile, which means they change rapidly and unpredictably—and that’s good news for traders! Volatility makes forex trading exciting and profitable, because when there’s a lot of movement in the market, you can benefit from it. Finally, forex has a certain degree of volatility that isn’t present in other markets. The average daily range of major currency pairs can be as high as 100–200 pips. This means that forex traders have the potential to make large profits much more quickly than they would in other markets.

 

CONS
High Degree of leverage

The cons of Forex trading are numerous. The first con is the high degree of leverage.

In Forex trading, you can use leverage to trade with a lot more money than you initially deposit in your account. For example, if you want to trade with $100,000, but only have $1000, you can request to borrow the additional $99,000 by using leverage.

Using leverage means having to pay interest on the borrowed amount. That means it’s important to always trade carefully and be sure that you’re not over-leveraging yourself because this can lead to serious losses if your trades don’t go as planned.

 

Hidden commission costs from brokers

The forex market is an incredibly competitive and volatile market, with dollar exchange rates constantly fluctuating due to international news, economic changes, and other outside events. There are many pros and cons to trading in this market, but the biggest con has to be the hidden commission costs.

In the forex market, very few brokers actually charge commission. Instead of charging a specific fee for every trade you make, most forex brokers make their money by setting the spread (the difference between the buy and sell price) wider than necessary. This means that when you make a trade, your actual profit or loss is usually smaller than it would have been otherwise because of this extra cost.

This isn’t a huge problem if you’re trading large amounts of money and can make up for the extra costs over time with bigger profits. But if you’re a small trader or just starting out, these hidden commissions can really add up and eat away at your bottom line.

 

Lack of Proper Education about Forex Industry

Lack of proper education is the most common reason why people lose money while trading forex.

The Forex market is a very attractive and fast-moving market, but also a complex one, where you have to understand how it works. It is vital for beginners to learn about forex industry and slowly start to develop trading strategies that will work for them.

Not only that, but the forex industry and the people who control it are constantly evolving. The forex industry is so complex that you can not just rely on common sense. You need to invest in proper education if you want to succeed as a forex trader.

However, here at Nairobi School of Forex we offer a comprehensive course to our students from Beginner to advanced level training.

Join us and get to experience the first class training that we offer.

 

Takeaway

The forex trading industry is a large, growing, and diverse market. Trading in the forex industry allows for the investment of a higher amount of money than other markets, with a smaller amount of risk than the stock market. Forex trading allows you to invest in a weak currency against a stronger one, to help translate your profits as efficiently as possible. This article has described the major benefits and drawbacks to trading in this unpredictable but fast growing industry.

Nairobi School Of Forex

Nairobi School Of Forex

Leave a Replay

About Me

Nairobi School of FOREX trading offers first-class and very comprehensive training programs to both retail and institutional clients in Forex Markets, Stock Indices, Commodities like Gold and Oil, from beginner level to advanced level

Recent Posts

Follow Us

News Coverage

Sign up for our Newsletter

Forex eLearning Course

Learn Forex with Kenya's most established Forex Trading Academy

***Terms and Conditions Apply

WhatsApp Us