Have you ever had a chance to trade in Forex Market? Do you know why to trade in Forex? Yes, the Forex market is becoming popular nowadays, and it is widely regarded as the most efficient financial market in the world. So trading Forex seems like a no brainer, but let’s see what are the advantages, and disadvantages when it comes to the market.
Ease of entry: Most experts would agree, that the nr. 1 reason for the sudden increase in interest towards Forex, are the requirements that can be met relatively easily. While for example the SEC requires anybody to have, and keep a minimum of $25,000.00 on their account, Forex allows some micro lots with only a single dollar on the account! As a result, accounts can be opened almost instantly, and funded by credit card on the same day! True 24-hour trading: Most market cannot really guarantee a 24-hour trading window because of the time differences, not Forex. Forex is basically open 24 hours a day, for 5, 5 and a half days every week. This makes a huge difference for many traders, a difference they’ll take full advantage of. Free analysis tools/trading software: Traders are usually paying for analyzing software and quotes, some of them even pays for them on a monthly basis. At Forex, all dealers will offer state of the art software, and quality market analysis, without traders having to pay for it. No commissions: The next obvious advantage is the no commission policy. Traders will only have to pay to enter the market, the dealers generally won’t ask for commission.
Forex is not perfect, there are several disadvantages of it, let’s see the most important ones: Unregulated, without a central marketplace: The most obvious disadvantage of Forex is the lack of regulation. It is a jungle out there, and dealers are being constantly accused of unfair activities against the traders. Moving prices to create losses, stop orders, you name it. If someone really wants to be on the safe side, they need to choose a dealer with a great reputation. The differences between interest rates, and negative rolls: In the best-case scenario, this can be an advantage, but often ends up being a disadvantage, and the newcomer is forced to pay daily, just to keep their position. Knowing the dealer’s roll policy is crucial here. Bank Interventions: Government banks will intervene from time to time without the knowledge of the average investor, so they can preserve the value of their currency. Those interventions are usually disguised well, so there is little anyone can do. The end result of the intervention is always the artificial weakening, or strengthening of the currency, making it very hard to do fundamental trading. Retail and wholesale price differences: About two-thirds of the trades that are going down on Forex are being made between dealers, and large organizations, like banks, or hedge funds. The problem with that is that those organizations will be able to buy at wholesale prices, while the everyday investors, will be forced to buy – and also sell – at retail price, which will always show in the spread.
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