While a forex trading career may seem like an easy way to make money, it is quite challenging, though it is highly engaging. Trading currencies differs greatly from trading commodities or stocks on the foreign exchange market, which is the world’s largest and most liquid market.
Especially for people with financial backgrounds, forex trading has become increasingly popular due to its high liquidity, 24/7 schedule, and easy accessibility. Forex trading is appealing to both young graduates and experienced professionals because you can make money using your laptop or mobile device.
Despite this, forex trading does have some disadvantages, including high volatility and risk.
Investing in forex has its pros and cons
Investing in forex, also called foreign exchange, can have several advantages. Among them are:
Pros of a Forex trading career
There can be very low costs associated with forex trading (brokerage and commissions). The spread between forex currencies is how most forex brokers generate profits – there are no commissions in a real sense. The overhead costs are eliminated since there is no need to include separate brokerage charges. In contrast, brokerage structures for equity and other securities trading vary widely, so traders must consider such fees before trading.
Forex trading career is suitable for a wide range of trading styles
Forex markets are open all day, allowing traders to trade at their convenience, which is very convenient for short-term traders who tend to take positions over short periods (say a few minutes to a few hours). Off-hour trading is rare among traders.
As an example, Australia’s daytime corresponds to the U.S. east coast nighttime. In U.S. business hours, AUD traders can trade AUD, since little development is expected and prices are in a stable range. As a result of the lack of developments specific to forex markets, these traders adopt high-volume, low-profit trading strategies. To compensate, they trade at high volumes with relatively stable low volatility durations to maximize profits. Long-term positions can also be taken by traders, which can last from a few days up to several weeks. Traders can take advantage of this flexibility when trading forex.
Liquidity is high
It is the forex market that has the highest notional value of daily trading compared to any other financial market. As a result, even large orders of currency trades are quickly filled without substantial price deviations because of the highest level of liquidity. A tighter spread leads to more efficient pricing by eliminating price manipulation and price anomalies.
In contrast to equity markets where price ranges stagnate during afternoons or volatility is high during opening and closing hours, traders need not worry about either. Non-stop trading can be observed with similar price patterns (of high, mid, or low volatility) unless major events are expected.
There are no regulators or central exchanges
A forex market operates over-the-counter worldwide, without a central exchange or regulatory body. There are rare occasions when a country’s central bank intervenes as needed, but these occur under extremely difficult circumstances. The market has already priced in most of these developments. In such a decentralized (relatively) unregulated market, sudden surprises are less likely to happen. Equity markets, on the other hand, can see huge price fluctuations when companies announce dividends or report huge losses.
Keeping costs low is also made possible by this low level of regulation. Direct orders are placed with the broker, who executes them on their own. Deregulated markets also allow you to take short positions, something that is prohibited in other markets for some security classes.
Traders can benefit from volatility
There are often large price swings among the major currencies. High volatility offers enormous profit potential if trades are placed wisely.
Trade a wide variety of pairs
Eight major currencies are involved in 28 major currency pairs. Economic developments, volatility patterns, or convenient timing can all be factors in choosing a pair. Currency pairs can easily be switched between by a forex trader who loves volatility.
Capital requirements for a Forex trading career are low
Forex trading is easy to start with a small amount of capital because of tight spreads in terms of pips. The lack of capital may make it impossible to trade in other markets (such as equity, futures, or options). Traders can leverage their forex trades up to 50-to-1 by utilizing margin trading. Despite the risks associated with such high margins, they also provide better profit potential when capital is limited.
To make a swift entry into forex trading, traders with varying levels of experience have access to hundreds of technical forex indicators as well as several fundamental analysis theories and tools.
In particular, for major currency pairs, the forex market is less susceptible to insider trading because of its size. Nevertheless, market manipulation still occurs sometimes.
Cons of a Forex Trading Career
As a career, forex trading has many advantages, but it also has many disadvantages.
An absence of transparency
Since the forex market is deregulated and dominated by brokers, one trades against professionals. Because the forex market is broker-driven, it may not be fully transparent. There is no guarantee that a trader will get the best price or will get a full perspective on trading quotes as provided only by his selected broker. Choosing regulated brokers under the supervision of broker regulators is a simple solution. Regulators may not control the market, but brokers do.
Process for determining prices that are complex
Several factors influence forex rates, primarily global politics, and economics, which can make analyzing information and drawing reliable conclusions difficult. Due to the high volatility in forex markets, most forex trading is based on technical indicators.
A high-risk, high-leverage investment
It is possible to trade forex on high leverage, which means that one can get multiple times more profit/loss exposure than he/she has invested. The forex market allows leverage of 50:1, so one only needs $1 to take a position worth $50. Leverage can benefit traders, but it can also magnify losses. Trading forex can be a loss-making nightmare unless one has a thorough understanding of leverage, an efficient capital allocation system, and the ability to control emotions (e.g., cutting losses short).
Learning by self-direction
Portfolio managers, trade advisors, and relationship managers can provide traders with professional assistance in the stock market. There is little or no assistance available to forex traders. Throughout your trading career, you must be disciplined and self-directed. Beginners often quit forex trading due to losses suffered due to inadequate knowledge and improper trading practices.
A high level of volatility in a forex trading career
The highly volatile forex market can easily lead to huge losses without control over macroeconomic and geopolitical developments. A particular stock can be led to change by shareholders, and regulators can intervene as well. Forex traders, on the other hand, have no recourse. The forex traders who held the Icelandic krona at the time of Iceland’s bankruptcy, for example, were only able to watch.
Prices and volatility are difficult to monitor regularly because markets are open 24 hours a day. Forex trades should be executed systematically through a well-planned approach with strict stop losses.
Financial professionals have found the foreign exchange market to be a lucrative opportunity. Traders with a laptop or smartphone can potentially score large profits in the forex markets thanks to low entry requirements and markets that are open 24/7. It is important to note, however, that these opportunities also come with a high level of risk and leverage. To succeed in forex, one must be disciplined and skilled. If you’re ready, get started in your forex trading career with a telegram.forex today.