Forex Trading is a global market that brings together traders from all over the world. There are brokers with nas100 among other indexes. It allows both companies, traders, brokers and individuals to trade on it. Its main activity is the exchange of foreign currencies.
Forex exchange is traded with CFDs (Contract for Differences). These allow users to speculate the movement of currencies, but they do not own any shares to the company. The level of income depends on the individual’s ability to predict the movement of currencies correctly.
There are very low rates required a starting capital and is convenient for beginners. There are guidelines on how to go about trading, deposit and withdrawals. Transactions are done directly between traders, lowering the costs.
Though with all these benefits, forex trading has some drawbacks. Such include:
- Risks of Counterparties
Forex is an international market. As such, there is no centralized regulation to its operations, as the exchange depends on many currencies. Traders therefore do trade on unregulated terms. There is a high possibility of losing junks of money especially where you are involved with a broker who does not intend to honor the contract. Success in trading therefore depends on proper market analysis and identification of potential risks.
- High Leverage
Higher leverage can be both a benefit and a drawback. Forex trading avails very high leverage which may pose a risk to traders, especially beginners. There is no limit to the movement of currencies and as such, you can lose all your investments in a matter of minutes. This happens when you place very high leverage on your currency and lack enough knowledge of the exchange. This has left many people in debts and others bankrupt.
- Risks associated with Operation
Forex markets are operating both day and night, while people operate on a few given hours. Traders are therefore forced to use algorithms and other methodologies of preserving their operations when they are away. There have been cases reported where people lose their moneys during the night or over the weekends.
However, there are operational firms that help in the management of operations. Unfortunately, they only operate on large scale. To avoid the losses, you need to have enough capital and knowledge to protect your investments and operations while you are away.
- Low numbers of successful traders
It is quiet discouraging to know that though Forex trading is a global market, there are very few successful traders. The reason behind this is the lack of proper trading strategies and indiscipline. There are also counterfeit accounts that scam people or hack their accounts. Since the market is not regulated, some traders fail to honor their contracts, resulting into losses for the other party.
Forex trading market has different investors with varying appetites. There are those who are after making more money than others. In the competition, some tend to lose junks of money while others benefit. Some of the disadvantages have been discussed above. However, winning or losing largely depends on your skills and knowledge of the market.