Forex – Pros and cons
Because Forex has a very high liquidity, investors can place large trades without any sort of variation in the exchange rate. Because of this, there are low margin requirements and trades can have any sort of size or risk factor.
Forex also allows for a large amount of leverage to be used. A trader can use 1.000 USD while borrowing 99.000 USD from their broker so they can set a 100.000 USD position regardless of the savings in the investing account. While it is a powerful tool to maximize gains, it can also cause catastrophic losses for both the investor and the broker. This is why this setting is not available on every broker; but again, this risk/reward factor is one of the main attractors of new investors to the Forex market.
The foreign currency market is open 24 hours a day and liquidity allows for any sort of investing strategy to take place. Traders often have a day job or work schedules, so they use Forex in their free time to check their assets and place new investments. Each market has different closing times, depending on their location; for example, Tokyo opens at 7 pm (Eastern Time) and London opens at 3 am.
But aside from benefits, Forex investing has certain risks. The leverage factor means that it’s always possible to lose any sort of profit because of a misplaced investment. In Forex, just like any other market, there will always be some sort of financial loss; it’s the trader’s responsibility to utilize its set of skills to be able to minimize losses while holding steady incomes. Because of the large amount of money and the even larger amount of players, every bit of information is vital in every investing decision the trader takes.
Most Forex brokers do not charge any sort of extra fees for the use of their services. When browsing for a broker, the trader must ensure that it feels comfortable to invest with that company; every broker is different in some way and they offer a whole array of tools and mechanisms that allow traders to spot indicators and trends with ease. Charts, technical analysis and currency fluctuation rates are often available on every broker’s online platform.
Forex also is credited with being one of the largest and most transparent markets in the world. Because of the massive amount of assets that are negotiated in Forex, it is almost impossible to intervene in any way the development of currency values. Each currency pair is associated with its country’s development stages, economical prowess and political scenario.
Since it’s a very volatile market, Forex has an enormous amount of liquidity which makes investing far less complicated that trading real assets. Forex is a market that’s based on speculation because traders try to take advantage of the price fluctuations between currency pairs and bet their money on whichever currency they expect to become stronger; then this process is repeated throughout several weeks or months. If done right, results can be very pleasing.