When trying to learn how to trade Forex, it is very important to understand the different aspects of this market. For this, it is very important to understand the advantages and disadvantages of Forex trading.
By understanding the advantages and disadvantages of the Forex trading market, you will be able to tell if this market is a good fit for you. Below, we will start by discussing the major advantages of Forex trading, followed by discussing the downsides of this market.
Trading Forex for Beginners - Pros
There are many advantages to trading currency pairs. Among them is the volatility of the market, which creates a lot of trading opportunities, Forex market hours, and the fact that it is very easy to get started in this market.
Let’s now take a look at each of these, as well as other, advantages of Forex trading.
Forex market hours - Trade currency pairs anytime
One of the biggest advantages of Forex trading is that it offers traders the opportunity to trade currency pairs at any time of the day or night. The Forex trading market is open 24 hours a day, 5 days a week.
This is possible thanks to the different time zones around the world. When one market closes, another one opens, which ensures that the market remains open 24 hours a day. A very interesting thing about the Forex market is that there is always some type of activity in the market, even on weekends, when the market is officially closed.
The reason for this is that there is always someone who wants to exchange currency pairs for personal reasons.
One of the most important things when discussing how to trade in Forex for beginners is understanding how the FX market hours work. Forex trading is not conducted at any one place. Rather, it is a global market, managed by various markets around the world. The market opens at 5 PM EST on Sunday and remains open until 4 PM EST on Friday. Any time in between, there is always at least one market open around the world.
In fact, sometimes, there are two markets open at the same time. In most cases, when such overlaps happen, the volatility of the market increases. This period is favored by many traders due to the many opportunities that can arise. Many even view it as the best time to trade currency pairs.
Using volatility to your advantage
Forex trading is a very diverse market where things can change very quickly. Because of this, sometimes, the market can get very volatile. Volatility is something that many traders are afraid of, but, the truth is, it can be used by traders to increase their profits.
During volatile hours in the market, prices are changing very fast. This can be a bit dangerous for traders, but, if you manage to use it to your advantage, you might be able to use it for quick and easy returns.
Volatility can be especially useful for traders who are using short-term strategies. When you are learning how to trade Forex, you will see that there are many different strategies that you can use. One that is favored by many traders is scalping, which is a short-term trading strategy. It envisages opening and closing a lot of small-profit trades throughout the day. When the market is volatile, you can make better profits with your small positions.
Easy to get started
A very important thing about Forex trading that makes it a great market to start trading in is the fact that it is easier to get started here than in other markets. All you have to do is find a Forex broker that you can trust with your funds, open a live account, deposit funds, and start trading. Simple as that.
However, the fact that it is easy to get started in the Forex trading market does not mean that it is easy to make profits. In fact, many people who start trading currency pairs end up losing their funds very fast because they simply do not have enough skills and knowledge. So, make sure to learn everything about the market before you decide to start trading Forex.
How to trade Forex - Cons
While Forex trading has numerous advantages, you should not forget that there are some drawbacks as well. First of all, the biggest disadvantage is that it is quite a risky market for trading. Because it requires a lot of dedication and analysis from traders, it can get quite difficult to trade Forex successfully.
Some of the biggest disadvantages in Forex trading are:
- High risks
- Self-directed learning curve
- Market analysis can take a long time
One of the biggest disadvantages of the Forex trading market is the risks that come with it. Although the fact that Forex offers higher leverage is mostly seen as an advantage by many traders around the world, it can also work against you.
Leverage acts like a double-edged sword in the Forex trading market, and it can be very dangerous for beginner traders to use leverage without adequate training and skills. Leverage can increase your chances of having higher losses, which makes it very important to use this tool with a lot of care.
In the Forex trading market, you are most likely to have to learn everything on your own. Although there are plenty of courses that you can sign up for, many traders prefer to learn on their own. This can be quite time-consuming and hard for beginner traders to do.
To be able to trade currency pairs successfully, you will also be required to do extensive market research and analysis. This includes both technical and fundamental analysis. Technical analysis is a process of using technical indicators and Forex charts to analyze the market. This can take you a lot of time and for many, it is considered to be a huge disadvantage.
