Before we dive into our main intentions, let us first know what a forex market is.
The foreign exchange market, also known as forex or simply FX is the biggest and most liquid market worldwide, with trillions worth of dollars being exchanged every single day.
Building a career as a forex trader could be profitable, flexible, and highly engaging.
Yet, there is an abrupt learning curve in this industry and traders are currently facing high risks, leverage, and volatility.
Let us now explore the pros and cons of forex trading!
Simple to Enter
Short-term traders could rely on hundreds of forex technical indicators available, while the long-term ones could depend on fundamental analysis theories and tools. These would create tons of choices with varying levels of experience for a smooth entry into the forex market.
Cheap Capital Needs
You can easily start to trade in the forex market with only a small amount of initial capital due to tight spreads in terms of price interest points (pips).
To compare, it would be very impossible to trade in other markets like stocks, futures, and options if you don’t have a huge amount of capital.
Trading in the forex market is low costs for brokerage and commissions since there is no commission in a real sense as most foreign exchange brokers are making their profits from the spreads between forex currencies.
Hence, you should not have to worry about having separate brokerage charges. In comparison to the stock market or other securities trading, where the brokerage structure widely varies, a trader must consider such fees.
No Central Regulator
Forex trading is operating in an over-the-counter (OTC) market operating worldwide, and there is no central exchange or regulator.
Occasionally, the central bank in some countries is stepping in when needed, but these are very rare events that only occur in extreme conditions.
Also, this low level of regulation helps the market keep at a low cost since orders are directly placed by the broker who executes them.
Adding to the advantage deregulated market is the ability of traders to take short positions, which is banned for a few security classes in other markets.
High Level of Liquidity
The forex market has the biggest notional value of daily trading, providing the highest level of liquidity. This means that even large orders of currency trades are easily filled without any huge price deviations, eliminating the manipulation and anomalies in prices.
Self Learning with no Assistance
Forex traders are completely on their own with no assistance throughout their journey in the foreign exchange market, unlike in the stock market where traders could ask for professional help such as portfolio managers, trade advisors, and relationship managers.
Lack of Transparency
Since the forex market is deregulated in nature and dominated by brokers, traders seem to be competing with professionals. This broker-driven field means that the market itself might not be fully transparent at all since a trader has no control over how his trade order gets fulfilled.
Complex Price Determination Process
It is important to know that forex rates are largely influenced by several factors such as global politics or economics, which could be hard to analyze information and draw reliable conclusions. Hence, most forex trading happens on technical indicators, but getting it wrong would result in a loss.