Forex trading is considered among one of the investment types that gives the highest profits possible. In past, Forex was only appropriate for banks. Nowadays, common people can take part in it with the help of online platforms and brokers. It is important that a Forex trader must know the benefits and risks associated with the online Forex trading. Here a list of pros and cons Forex Trading, that can be specially useful for Novice Traders:
Advantages of Forex Trading
Possibilities of High Profits
Thanks to the leverage, a trader can increase his potential profits & losses. In fact thanks to the leverage, you can “move” a greater amount of money than the one that you have actually invested on your position. For example, if you invest $100 on a position, and your Forex Broker offers to you a leverage of 1:100, it means that you can move $10.000 (Because: (Invested Money) x (Leverage) —> $100 x 100 = $10.000). Thus, your earnings and losses will be calculated on this amount of money: on $10.000, and not on the money that you have invested ($100). For this reason, it’s true that you can increase your potential profits… But you can increase your potential losses too.
24/7 Trading Time
One of the great advantages of Forex trading is that it remains open 24 hours a day. It works five days a week and remains close on weekends. It gives a chance to traders to select their preferred time for trading. Whether they are convenient to trade at night or day, they are welcome to start.
Low Charges
It is beneficial for new traders that Forex market does not demand high charges. Stock exchange takes high charges but the fees for Forex trading are received in spread while exchanging two currencies. Low amount of charges gives an option to invest more money without any fear.
Technical Tools and Online Services
It is good to keep on trading while sitting in your own room. There are many technical tools and online services which help the beginners and novices to know the rules and procedures of trading. Thanks to different websites (Ours included) you can learn how Forex Trading works, what is the knowledge that you need to start a profitable trading and you can always remain updated to the latest financial news that may affect the currencies movements.
Trading Platform & Software
The vast majority of platforms (Metatrader is the most known platform) offered by Forex Brokers, are pretty useful. They allow you to study with accuracy the charts of different currencies at the same time, to place your study on the charts (As drawing trending lines, adding indicators/oscillators, etc…) and even to start automatically a position when a certain level (In the value of a currency) is reached (Or at a certain time during the day) or to close a position.
Disadvantages of Forex Trading
Fast and Unstable Market
One of the great drawbacks of this market is that is unstable: the value of a currency can change faster than you might think. Though it is helpful in generating profit, at the same time the trader risks to lose his money in few minutes. Moreover the Forex market is always opened, 24/24 for the whole week: even when you are sleeping, money are moving (That’s why you should always use a Stop Loss & a Take Profit).
Leverage is like a Double Edged Sword
Thanks to the leverage, a trader can increase his potential profits & losses. In fact thanks to the leverage, you can “move” a greater amount of money than the one that you have actually invested on your position. For example, if you invest $100 on a position, and your Forex Broker offers to you a leverage of 1:100, it means that you can move $10.000 (Because: (Invested Money) x (Leverage) —> $100 x 100 = $10.000). Thus, your earnings and losses will be calculated on this amount of money: on $10.000, and not on the money that you have invested ($100). For this reason, it’s true that you can increase your potential profits… But you can increase your potential losses too.
Connection Failures
Although it’s a rare event, it could happen that the Broker/Platform that you are using for Trading has a problem with the connection (Or with their servers), that can freeze the platform that you are using for few seconds, or in the worst case scenario for few minutes.That’s a great risk, because even if the platform that you are using on you computer, is frozen due to a connection failure, it’s not the same for the Forex Market: thus the currencies will keep moving, increasing or decreasing their values. In this way, you can lose the opportunity to open a position at the right time, or to close it.
Scammers
Today, they are everywhere. They pop up specially when there is the chance to make a lot of money, by scamming people that are not so tech savvy or probably, just novices to a certain activity. In case of Forex Trading, it’s plenty of scammers: we would highly suggest you to read our article about the Forex Scams, and how to recognize them.
