Forex trading is very popular for numerous reasons. In this article, we will outline the advantages of Forex trading. Since we all know how things work in Forex we will not be naive to hide the dark side of the business. Today, you will decide whether this type of trading is or isn’t your cup of tea. Not everyone will fall in love with Forex, some people may prefer for example binary options.
Many reasons are identical with those valid for binary options trading. Let’s refresh them. I personally, like the freedom of choice. You can do your trades for 24 hours a day 5 days a week. If you have a traditional full-time job there is no problem to open a trade early in the morning and close it later in the evening or at night. The freedom of choice also includes the trading place. All you need is a PC and access to the Internet. That’s all. The trading platform is free. If you are not on-line non-stop, you can control your trades by phone (trading apps supported by Android and iOS are now a commonplace). I personally use my phone to control or close a trade, but also for having just an overview of what’s going on.
Forex as such is the world’s most liquid market (with plenty of buyers and sellers), especially in terms of major currency pairs, typically EUR/USD. The liquidity in this market is enormous, which means that your order is almost instantly accepted, processed and settled. A smooth trading process day and night is a great benefit of Forex trading (naturally, volatility fluctuates, which you will notice after a period of trading. At night, especially around midnight the activity is lower. Yet, there are strategies covering this period enabling a quick processing of all orders).
Forex trading only requires few dollars to begin. There are no financial limits as to the deposit or profit. If you open a good trade and the exchange rate moves in the right direction, your profit will be, by principle, unlimited. However, remember that this also applies to losses. Therefore, be cautious not to wipe out all your trading account in a single trade. This is the major difference against binary options trading. You are the one who controls the risks. Fortunately, there are tools such as “take profit” and “stop loss” that can help you set the limits for closing a trade in case of profit or loss.
Key advantages of forex
- Freedom of choice in terms of time, place and invested cash
- Forex is an extremely liquid market. Your order is always processed (in particular when trading EUR/USD)
- To manage your risks you can use several tools (take profit and stop loss) that help you close your deal at the right time
The dark side of forex
There is basically one disadvantage in forex trading. I have already mentioned it. It is the absence of a loss limit. Unless you set your stop loss or manage to close a trade at the right time, you can lose all money on your trading account. It might even be worse. Psychology is powerful. Many people tend to believe that the trend must reverse until they lose all their money on the trading account. This works in the opposite direction, too. Afraid of what the market can do, a trader with a trading strategy tends to close a trade prematurely instead of waiting for reaching the planned profit.
Lessons to learn: You must be disciplined. Another must is a business plan specifying the conditions for opening a trade, your stop loss and take profit, conditions for prematurely closing a trade in case of loss or profit. Binary options trading requires discipline, too. Nevertheless, when trading binary options, things are not so critical because you know your maximum profit and loss even before opening a trade.
Key disadvantages of forex trading:
- Possibility of losing all money on your trading account in a single trade (unless you enter stop loss or close a trade by hand)
- Rigid discipline is a must-have
- Psychological pressure on the trader in case of a long open losing trade