The Good & the Bad (Kinda)
Benefits Of A Forex Market
There are two notable benefits to having a forex market that you should be aware of.
- More Liquidity: Because the forex market is the largest market in the world as far as daily trading volume is concerned, it offers more liquidity than other markets. This makes it far easier to enter and exit the market for any major currencies, all within seconds.
- More Opportunities To Trade: Unlike the stock market, the forex market is open 24 hours a day, 5 days per week. Instead of shutting down, like the New York Stock Exchange, the forex market simply shifts to a different financial center somewhere else in the world.
Challenges Of A Forex Market
Along with benefits, there are challenges present with a forex market:
- High Amount Of Leverage: As banks, brokers, and dealers within the forex market allow a higher amount of leverage, traders are able to control larger positions without investing too much of their own money. Traders need to understand how leverage contributes to risks in the forex market. With such a high amount of leverage, many dealers become unexpectedly insolvent.
- Requires Financial Understanding: Because the forex market moves so quickly and is so large, trading within it with success requires a person to have an understanding and awareness of economic fundamentals and indicators. Currency traders will need to have a macro understanding of the economies around the world, as well as an awareness of how these economies interact because that will determine the currency values.