Forex trading has been around for a very long time but has grown more popular in recent years. Easier access to trading platforms and social media has boosted the number of people interested in trading forex.
If you are in and around the finance world, you’ll probably know what forex trading is. It may not be the favourite for some investors, but it is a good way of returning profit.
However, just like any other investment, it comes with risks that you will need to prepare for. Unfortunately, if you want to become a professional trader, it’s not going to be an easy ride!
Forex trading is also slightly different from trading things such as the stock market. If you have good skills there, it may not necessarily translate to the forex market.
This is why you need to be careful, even if you are an experienced trader. Jumping into the market unprepared could set you up to lose thousands.
To help reduce the risk of avoidable losses, you’ll need to know if forex trading will work for you. Read on to find out the Pros and Cons of forex trading.
Pros of Forex Trading
Unlike stock markets, forex markets are open throughout the whole day- they are only closed on weekends.
This is very beneficial for short-term traders as they can open and close positions at any point in the day. There’s no need to worry about daily off-hours.
Furthermore, it also accommodates long-term trades over a few days or weeks. Traders can also benefit from more significant price movements and trends over more extended periods.
Forex trading has much lower costs when compared to over types of market trading. On most forex trading platforms, there will be no commission on trades.
You’re also unlikely to incur extra fees from brokers, and most brokers will profit from spreads between currencies.
Cheaper trading will ultimately result in higher rates of return. Lower costs from brokers and platforms mean you can keep more of your revenue.
Forex currency pairs will experience lots of price movement. Compared to most stocks and securities, forex currencies have much higher levels of volatility.
If you’ve practised your skills correctly, you should be able to capitalize on this and increase and generate higher rates of return.
Cons of Forex Trading
Most forex trading platforms will offer leverage, and leverage is vital to making significant profits when trading forex.
However, in the same way it can maximize profits, it can also escalate losses. If you don’t manage your trees effectively, you can find yourself in a losing streak that may put you off trading permanently!
As you can tell, increased volatility is a bit of a blessing and a curse!
If you can capitalize on market trends, high volatility may work well for you. However, it’s not going to work in your favour all the time.
If you don’t monitor your positions correctly, you can find yourself losing large chunks of money in tiny spaces of time.
Many different factors can influence currency pairs, and the most important are economic and political conditions.
These can be very hard to analyze effectively. Sometimes you may find yourself shooting in the dark with a lack of helpful information.