Why you should consider Forex trading and what are the benefits

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If you are considering making extra income without much fuss, here’s why you should consider Forex trading.

So, you want to start investing your money. You are not sure exactly where, so we made sure to make it easy for you. The stock market and foreign exchange are currently all around us, but we will show you why you should consider forex trading first.

Forex means “foreign exchange,” and it operates non-stop. It is based on the internet, so it also makes it easier for you to learn and invest and generally to be more updated on everything happening around you. Here are the main reasons why you should consider forex trading.

Foreign exchange trading, commonly referred to as forex trading, is the practice of buying and selling currency values with the aim of making a profit. As a global market, forex trading is conducted all over the world, with the largest markets located in major financial centres including New York, London, Tokyo and Hong Kong.

You can make a steady passive income.

Passive income is something you took time to research, invest in, and then let it bring you money. How? By being patient and knowing what you were doing in the first place. Foreign exchange is an exciting place, and you should learn the basics for sure. Once you are comfortable enough, invest little by little, wait for some time, and see what happens. You will see the terms stock market and forex a lot. We think if you are someone who wants to research but is more into the exciting part of trading, you should consider foreign exchange (forex). It doesn’t mean you won’t have much to learn – on the contrary. But it will give you a new insight and perspective on the world and money in general.

You will know more about the economy.

When you do forex trading, you can’t rely on luck (maybe a bit, but if you expect to win an insane amount of cash, it would be better to reconsider your options once again). Knowledge and preparation are crucial in this field. That doesn’t take away the fun – it makes it even more enjoyable. Talk to people who are already trading and see how everything affects the currency, from economy to politics, to climate crises. It is crucial to know how the market operates so that you can make your trading plan. In time, you should be able to predict somewhat and wait for the opportunity or seize one when you see it. Acting at the right moment is a trait of a successful trader.

According to the Bank for International Settlements triennial report of 2016, the foreign exchange market cap averaged $5.1 trillion per day and has reached to $6.6 trillion per day in April 2019.

You will learn the difference between scammers and regulated brokers.

Ads saying you will make your first million in a week? A day? Scratch that. As soon as you see that type of logo, you know it’s a scam. Why? Because of what we wrote above. If you accidentally click on an ad of that kind, you will start getting calls from random companies claiming they are regulated and that you should open an account with them ASAP. First of all, you don’t have to do anything right away. Do your research – check them online, see if they are regulated (if it’s an exotic island, it’s probably a scam). See if the name of your potential broker shows up on LinkedIn, check the company reviews. Also, a broker is, therefore, and therefore he should be willing to help you, not the other way around.

Global Stock Market Worth: $90 trillion

Global Forex Market Worth: $1.93 quadrillion (~2.5x of global GDP)

You will learn how you think about money.

You can learn a lot from the way someone is trading. If you are a newbie, try researching how successful forex traders began, and you will spot many similarities. They were all investing small, and gradually bigger. That happened only when they had more money, and they were better at figuring out the market. Keep in mind that you will probably develop your trading way, so take these as an example for learning.

Money Management

You are investing real money, although it might seem like you aren’t – at the beginning. Trading online is a blessing if you know how to use it right. A market that operates 24/7 can offer you so many opportunities from the comfort of your home. But this will make you more careful of your overall expenses, where you are overspending, and how you can turn it into something better. You are investing in yourself by investing in forex.

To summarize here are the pros and cons of Forex trading

Advantages of Forex Market

  • Largest Financial Market
  • It’s for Everyone
  • High Volume and Liquidity
  • Nobody Owns the Market
  • Trade the Highs and the Lows
  • A 24-Hour Market
  • No Commissions on Most Accounts
  • Low Transaction Costs
  • Leverage
  • Risk-free Demo Account

Disadvantages of Forex Market

It would be a biased evaluation of the Forex markets if attention was paid only to the advantages while ignoring the disadvantages. Therefore, in the interest of full disclosure, some of the disadvantages of Forex market have been listed below:

Counterparty Risks

Forex market is an international market. Therefore, regulation of the Forex market is a difficult issue because it pertains to the sovereignty of the currencies of many countries. This creates a scenario wherein the Forex market is largely unregulated. Therefore, there is no centralized exchange which guarantees the risk free execution of trades. Therefore, when investors or traders enter into trades, they also have to be cognizant of the default risk that they are facing i.e. the risk that the counterparty may not have the intention or the ability to honor the contracts. Forex trading therefore involves careful assessment of counterparty risks as well as creation of plans to mitigate them.

Leverage Risks

Forex markets provide the maximum leverage. The word leverage automatically implies risk and a gearing ratio of 20 to 30 times implies a lot of risk! Given the fact that there are no limits to the amount of movement that could happen in the Forex market in a given day, it is possible that a person may lose all of their investment in a matter of minutes if they placed highly leveraged bets. Novice investors are more prone to making such mistakes because they do not understand the amount of risk that leverage brings along!

Operational Risks

Forex trading are difficult to manage operationally. Forex market works all the time but a humans cannot. Therefore, traders have to resort to algorithms to protect the value of their investments when they are away. Alternatively, multinational firms have trading desks spread all across the world. However, that can only be done if trading is conducted on a very large scale.

Therefore, if a person does not have the capital or the know how to manage their positions when they are away, Forex markets could cause a significant loss of value in the nights or on weekends.

With the huge growth of trading opportunities over the past two decades, financial markets have become accessible to more and more people, who are faced with the challenge of choosing the market most suitable to them. Any potential trader must take into consideration the advantages and drawbacks of a financial market before they commit their time and resources to it.

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