The currency market, also known as the foreign exchange market, is a marketplace where different currencies are bought and sold by different participants from different parts of the globe. This market plays an eminent role in the conduct of international trade.
The key players in the
currency markets include big Multinational banks, corporations, governments,
and retail traders. The Forex market has become a common profession for many
investors due to its high liquidity, 24-hour trading schedule, availability and
many other benefits. The Forex market is the largest financial market in the
world, in which investors from all over the world participate in trading and
make a profit through Forex trading. Forex online trading has advantages and
disadvantages. Some of the advantages and disadvantages of the Forex market are
as follows:
The advantages of the
Forex market include the following.
I.
Low costs
Forex trading has very
low costs. Fees and commissions are low in Forex and there are no other costs
in the real-world market because most Forex traders receive money and interest
from the difference between the exchange rates.
Therefore, in the Forex
market, you do not have to worry about multiple brokerage costs and removal of
overhead. The low cost of commissions in Forex trading is one of the benefits
of the Forex market.
II.
24-hour access 7 days a week
The Forex market is one
of the most open markets for personal traders. Traders open an account in the
Forex market in one to two days and start trading at 50 pounds. Trading in most
brokerage firms can be done online, and traders have access to real market
demand, reports, pricing plans, resources, and techniques through digital
exchange networks. Forex support services are provided 24 hours a day, 7 days a
week.
III.
Forex is suitable for different trading styles
Forex markets are open
all day, which makes trading easier for investors and is very desirable for some
traders who are looking for short-term profits, as they prefer short-term (e.g.
Minutes to hours) to maintain their position.
Australian
daylight-saving time, for example, is on the east coast of the United States. A
U.S.-based dealership may exchange AUDs during normal US business hours because
little progress is expected and rates for AUDs are fixed during these normal
business hours.
IV.
Increase liquidity
The Forex market has
the largest number of financial investors compared to other financial areas of the
world, which offers the highest amount of liquidity. This reduces the risk of
market abuse and price inequality and helps create more competitive rates. So
there is no need to worry about sharp price fluctuations in the opening and
closing hours or stagnant price levels in the morning, which is a feature of
financial markets, and until large changes are expected, similar market
patterns can be predicted.
V.
Forex is a decentralized market
As an active
marketplace worldwide, Forex is not affiliated with any single site or
jurisdiction. Such a decentralized economy helps to avoid unexpected market
shocks. This feature also helps keep rates low.
VI. Possibility of initial investment with
low capital
Due to the limited
spreads known as the pip in the Forex market, it is easy to start Forex trading
with a small level of foreign exchange capital.
VII.
Various currency fluctuations and
options
In the Forex market,
major currencies have high price fluctuations. If trades are strategically placed
in the right position, high price fluctuations will help generate significant
profits.
There are 28 major
currency pairs and 8 major currencies in the Forex market. Currency selection standards
may be easy to schedule or have periods of instability or economic patterns. In
this situation, Forex traders who are interested in such fluctuations can
easily shift from one currency pair to another.
VIII. Easy
sales in the short term: Short-term sales in certain markets can be
associated with high risk. But in Forex trading, it is very easy to sell
currency in the short term. Currencies are bought and exchanged in pairs in
Forex; this means that every time a trader buys a currency, he sells another
currency. Easy short selling is one of the advantages of Forex market.
IX.
Full Forex system automation: Forex
trading is fully compatible with e-commerce techniques. By doing some research.
Forex traders can automate trading, logging in, stopping losses, and limiting
pre-trade prices. Or even order the system to trade in price fluctuations in
other economic conditions. This is another advantage of the Forex market.
Using a well-designed
automated approach, a trader can make the most of the benefits of daily
fluctuations in the Forex market, without wasting his physical and mental
capacity by being aware of the latest market changes.
Disadvantages of the
Forex market
Although the forex
market has many advantages, it still has disadvantages, which we will discuss
below.
I.
Lack of transparency in the Forex market
Due to the existence of
intermediaries or brokers in the Forex market, this market is not completely
transparent. This is because with a broker, a trader may not have enough power
to figure out how to order and trade, or may not know enough about the best
offer, or may even have limited views on bids that provided only by his chosen
broker.
II.
Complex indicators of price volatility
Price fluctuations in
Forex are influenced by several factors, especially the political or economic
factors of the world, which make it difficult to interpret the data and draw
accurate conclusions about trades.
III.
Increase risk, increase leverage or leverage:
It is possible to
invest in Forex with high leverage, and this can lead to trades that may be
profitable or unprofitable. Forex markets allow 1:50 leverage. Although a
trader can take advantage of leverage, it is also high risk and sometimes even
forex trading can quickly turn into a disastrous catastrophe; unless one has a
good understanding of leverage, an effective capital allocation system, and
deep emotion management. One of the disadvantages of the Forex market is the
leverage issue.