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Foreign Exchange, Forex or FX is one of the
world’s largest financial markets dealing in real-time exchange of
currencies of different countries. This currency exchange market has a
greater volume of buyers and sellers, than in any other financial market of
the world.
With major trading centers at Sydney, London, Frankfurt, Tokyo and New York,
Forex is the only financial market, which is open 24 hours a day, 5.5 days a
week, across the globe.
One of the most popular speculation markets, Forex is a market well known
for its huge volume, superior liquidity, as well as the steady trading
prospects. Also attractive is high levels of Leverage, one of the unique
features offered by the Forex market.
Advantages of Forex trading
High leverage
Starting from a minimum of 100:1, Forex markets offer its traders with huge
amounts of leverage which means that fat profits can be produced by
investing small amounts of deposits.
No commission
If dealing with a financial market on daily basis, the regular investors or
traders are the ones who are really benefited by the “free of commission”
trading. The currency trading market lets its traders keep a whole 100% of
their trading profits.
Superior liquidity
With most of the currency transactions comprising of 7 main currency pairs,
the huge volume and the global trading aspect helps these currencies exhibit
price stability, little slippage, narrow spreads and high levels of
liquidity.
Profitability
Being an over the counter market, the trading done at Forex can be known as
“over the counter” trading, wherein, a trader always buys one currency and
sells of the other one in real time. There is no organizational prejudice in
the market and every investor has the equal prospects for profit in it.
24 hours trading
Forex currency trading market offers its traders with a 24 hour trading
opening, wherein, a Forex investor can trade ant any time of the day,
whatever suits him/her, as the market is open for trading 24 hours a day,
from Sunday 5:00 pm (ET) to Friday 4:30 pm.
This gives the Forex traders a choice to opt for timing for the trade
according to their convenience.
Disadvantages of Forex trading
High Leverage
While high leverage serves as an advantage to attract traders to the market,
it can at times also act as a disadvantage for them. With such high levels
of leverage available to traders in the Forex market, comes an equally high
level of danger.
This can be true for the high stake positions which carry along with them,
too much risk, leading to margin calls. This is where efficient money
management comes into play for playing safe.
24 hours market
Although it is convenient for the trader to trade whenever it is suitable to
him, it can be a rather tough job too. This is because, at times, it is not
possible for an individual trader to keep track of the Forex market, 24
hours a day.
This is where a broker comes into the picture. Retail or individual
investors should try taking help from a professional broker rather than
doing all the dealings himself straight with the huge market.
The broker will be an experienced professional who will act as an equal in
your transactions, keeping you informed and updated about minute to minute
details and fluctuations, and even guide you about the conditions, when to
and when not to trade in the market.
Like every other financial market, Forex market also has its share of
advantages and disadvantages. But keeping in mind the two can surely help a
trader become more vigilant and aware of what to expect while trading Forex.
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