One of the first decisions a trader makes concerns the type of
market to enter. Options, mutual funds, futures and stocks are great
choices, but they often need large trading accounts. This may be
difficult to arrange, at least when first starting out, for the new
traders. A good candidate for the new trader includes the forex or
foreign exchange market.
Here are some of the key points related to forex trading pros and cons:
Pros
High leverage - A significant appeal for many traders entering the forex market is the choice of high leverage. A trade margin in forex can equal 50:1, which is a great improvement on the options in the stock market at a 2:1 margin. A large trading position is possible with forex trading even with a relatively small account, but this high leverage can also mean accepting a high risk.
Scalability - An attractive appeal of forex trading is the high level of flexibility in regards to the size of position. Micro lots, mini lots or full size lots are given by most brokers. A trade based on the micro lot equals $0.10 for each pip, a trade in minis equals $1 and a full size lot equals $10. This variation in pip risk offers more control and limits the exposure for the trader.
24-hour trading - Irrespective of your physical location, the forex market is up and running somewhere in the world. All that is necessary to trade is access to a computer and a reliable internet connection.
No or low fees - Forex trades include no or low fees. In place of a commission, a broker is compensated by accepting a spread in relation to the difference in prices on the buy side. The amount scalped on each trade can vary based on information like the time of day, currency pair, and broker.
Software and data - Most brokers in the forex market give access to a range of resources such as those on trading software, free charting, and real-time data. Information of this type is rarely offered in most other types of trading, so it is a significant plus for those entering forex trading
.
Cons
24-hour trading - Even though it is possible to traded 24 hours a day, it is rarely an advantage to enter the trading arena any time of the day or night. Aim to observe the major markets (Asia, UK, and the US) and start trading during the peak hours. Trades are most active and have follow through during peak hours. Trades instigated during the off-peak hours may see minimal movement.
Competition - The forex market has many major traders working on behalf of the large financial institutions. Due to the high volume of trades this has the potential to push the prices around. A single trader should use a well-researched trading strategy, discipline, and use tight risk management to help maintain control of the trading position.
Here are some of the key points related to forex trading pros and cons:
Pros
High leverage - A significant appeal for many traders entering the forex market is the choice of high leverage. A trade margin in forex can equal 50:1, which is a great improvement on the options in the stock market at a 2:1 margin. A large trading position is possible with forex trading even with a relatively small account, but this high leverage can also mean accepting a high risk.
Scalability - An attractive appeal of forex trading is the high level of flexibility in regards to the size of position. Micro lots, mini lots or full size lots are given by most brokers. A trade based on the micro lot equals $0.10 for each pip, a trade in minis equals $1 and a full size lot equals $10. This variation in pip risk offers more control and limits the exposure for the trader.
24-hour trading - Irrespective of your physical location, the forex market is up and running somewhere in the world. All that is necessary to trade is access to a computer and a reliable internet connection.
No or low fees - Forex trades include no or low fees. In place of a commission, a broker is compensated by accepting a spread in relation to the difference in prices on the buy side. The amount scalped on each trade can vary based on information like the time of day, currency pair, and broker.
Software and data - Most brokers in the forex market give access to a range of resources such as those on trading software, free charting, and real-time data. Information of this type is rarely offered in most other types of trading, so it is a significant plus for those entering forex trading
.
Cons
24-hour trading - Even though it is possible to traded 24 hours a day, it is rarely an advantage to enter the trading arena any time of the day or night. Aim to observe the major markets (Asia, UK, and the US) and start trading during the peak hours. Trades are most active and have follow through during peak hours. Trades instigated during the off-peak hours may see minimal movement.
Competition - The forex market has many major traders working on behalf of the large financial institutions. Due to the high volume of trades this has the potential to push the prices around. A single trader should use a well-researched trading strategy, discipline, and use tight risk management to help maintain control of the trading position.
