Forex trading is one of the most difficult professions that a person can take up and not as some say classifying it as an easy business. The forex market can be considered one of the most important, largest and most liquid markets in the world, but forex trading differs significantly from stocks or commodities.
Due to its high liquidity, 24/7 schedule and easy access, forex trading has become a popular career, especially for those with a financial background. Being your own boss with the convenience of making money from your laptop is enough motivation for any recent graduate or seasoned professional to consider forex trading as a career.
Benefits of forex trading
The profession of forex trading offers many benefits to who knows who is a professional forex trader. These characteristics are as follows:
Forex trading can have very low costs (brokerage fees and commissions). Since there are no commissions as such, most forex brokers make a profit from the price differences between forex currencies.
You don’t have to worry about including a separate brokerage fee, eliminating overhead costs. Contrast this to stock or other securities trading where the brokerage structure is very different and the trader must take these fees into account.
It suits different trading styles
Forex markets are active throughout the day, which makes trading easy. That makes the theme very useful and smooth for those who are short-term traders and tend to close trades in short timeframes. Few traders trade during full business hours.
Compared to all other financial markets, the forex market has the largest face value of day trading. This offers maximum liquidity, which means that even large orders for forex trading can be executed easily and efficiently without any significant price deviations. This eliminates the possibility of price manipulation and price anomalies, allowing for tight spreads that result in more efficient pricing
There is no central exchange
Because it is an over-the-counter market that operates around the world, there is no centralized or regulated exchange for the forex market. Central banks of different countries occasionally intervene as needed, but these are rare events that occur under extreme circumstances.
Such a (relatively) decentralized and unregulated market helps to avoid sudden surprises. Contrast this with the stock markets, where a company can suddenly declare a dividend or report huge losses, leading to massive price changes.
Volatility can be a trader’s friend
The major currencies are often subject to high exchange rate fluctuations. If the trades are placed wisely, the high volatility helps with huge profit opportunities.
Plenty of couples for action
There are 28 major currency pairs including 8 major currencies. The criteria for choosing a pair could be appropriate timing, volatility patterns, or economic developments.
An aggressive forex trader who loves volatility can easily switch from one currency pair to another.
Low capital requirement
Due to the tight spreads in pips, one can easily get into forex trading with a small initial capital.
Without more capital, it may not be possible to trade in other markets (such as stocks, futures or options). The availability of margin trading with the high leverage is a freeze on forex trading. While trading at such high margins comes with its own risks, it also makes it easier to find better profit potential with limited capital.
There are hundreds of reliable forex technical indicators for short-term traders and many more fundamental analysis theories and tools for long-term forex trading, creating tremendous choice for traders of different experience levels to quickly get into forex trading.
Disadvantages of forex trading
Basically, forex trading as a career has many advantages, but also disadvantages.
lack of transparency
Due to the unregulated nature of the broker-dominated Forex market, you are actually trading against the pros.
The trader may have no control over how their trade order is executed, may not receive the best rate, or may have limited insight into trade prices provided only by the chosen broker.
The solution is simply to only deal with regulated brokers, i.ee fall within the jurisdiction of broker regulators.
Complex pricing process
Forex prices are influenced by several factors, primarily world politics or the economy, which can make it difficult to analyze information and draw reliable conclusions for trading.
Forex trading is largely based on technical indicators, which is the main reason for the high volatility in the forex markets. Mistakes in technical matters lead to loss.
High risk and high leverage
Forex trading is available with high leverage, which means one can win/lose multiples of trading capital. The forex markets allow for 50:1 leverage, so it only takes $1 to open a $50 forex position.
While the trader can benefit from leverage, the loss is magnified. Forex trading can easily turn into a nightmare without a solid understanding of leverage, an effective capital allocation system, and strong control over emotions.
In the stock market, a trader can get professional support from portfolio managers, trading advisors and manager relations. Forex traders are completely on their own with little or no help.
Disciplined and continuous self-directed learning is a must during a trading career. Most beginners give up in the initial stages mainly because of the losses they have suffered due to limited forex trading knowledge and improper trading.
Without control over macroeconomic and geopolitical developments, it is easy to incur huge losses in the highly volatile forex market.
If something goes wrong with a particular stock, shareholders can pressure management to make the necessary changes and turn to regulators instead.
At the end
The Forex market has become a lucrative opportunity for people with a financial background.
Anyone with a laptop or smartphone can make big profits in the forex markets. However, these opportunities also come with high leverage and high risks.