Before diving into our main intentions, let us first know what a forex market is.
The foreign exchange market, also known as forex or simply FX, is the largest and most liquid market in the world, with billions of dollars traded every day.
Building a career as a forex trader could be profitable, flexible and very engaging.
Yet, there is a steep learning curve in this industry, and traders currently face high risk, leverage, and volatility.
Now let’s explore the pros and cons of forex trading!
Ease of entry
Short-term traders might rely on hundreds of forex technical indicators available, while long-term ones might rely on fundamental analysis theories and tools. These would create tons of choices with different levels of experience for a smooth entry into the forex market.
Cheap capital requirements
You can easily start trading in the forex market with only a small amount of initial capital due to tight spreads in terms of price points of interest (pips).
To compare, it would be very impossible to trade in other markets like stocks, futures and options if you don’t have huge capital.
Trading in the forex market is inexpensive for brokerage and commission as there is no commission in any real sense as most forex brokers make their profits from the spreads between forex currencies.
Therefore, you shouldn’t have to worry about having separate brokerage fees. Compared to the stock market or other securities trading, where the brokerage structure varies widely, a trader must consider these fees.
No central regulator
Forex trading operates in an over-the-counter (OTC) market operating worldwide, and there is no central exchange or regulator.
Sometimes the central bank of certain countries intervenes when needed, but these are very rare events that only occur in extreme conditions.
Moreover, this low level of regulation helps the market to maintain itself at a low cost since the orders are placed directly by the broker who executes them.
Adding to the advantage of the deregulated market is the ability for traders to take short positions, which is prohibited for some classes of securities in other markets.
High level of liquidity
The forex market has the largest notional value of daily trade, providing the highest level of liquidity. This means that even large currency orders are easily executed without huge price discrepancies, eliminating manipulation and price anomalies.
Self-learning without assistance
Forex traders are completely on their own without any assistance throughout their journey in the forex market, unlike the stock market where traders can seek professional help such as portfolio managers, trading advisors and relationship managers.
Lack of transparency
Since the forex market is deregulated in nature and dominated by brokers, traders seem to be competing with professionals. This broker-focused field means that the market itself may not be fully transparent since a trader has no control over how their trade order is executed.
Complex pricing process
It is important to know that exchange rates are largely influenced by several factors such as politics or the global economy, which could be difficult to analyze the information and draw reliable conclusions. Therefore, most forex trades occur on technical indicators, but a mistake would result in a loss.