BY DALE HARRIS
Are you considering forex trading? Many people are jumping into the (foreign exchange) forex market because it’s the most accessible financial market available.
Getting started in forex trading requires very little capital. You can usually open an account for around $25.
It also operates 24/7 which is attractive to those seeking extra income aside from their day job or for those seeking a new career altogether.
But is forex worth it?
Even though it’s very easy to open an account and get started, a number of pros and cons must be considered before jumping into the forex market.
Don’t fall prey to the forex trading myths and hearsay. Check out the advantages and disadvantages of currency trading to help decide if it is for you.
Pros of Currency Trading
Here are four of the biggest benefits of trading currency and the main reasons why many are attracted to the forex market.
- Low Cost of Trading
As mentioned above, you can open an account for very little capital. Starting capital is recommended at $500 to $1000. More than $1000 is needed if you want to draw a monthly income stream.
Commissions and brokerage fees are very low. Most forex brokers make money on the spread between the forex currencies. The solution to limiting these fees is to use only brokers with low spreads.
- The Forex Market Is Very Convenient
The forex market is open for trading 24-hours a day from 5 PM EST on Sunday through 5 PM EST on Friday.
Ideal trading times vary between the different currency pairs because of the time differences between countries. It’s generally best to trade between the hours or 3 AM EST and noon EST for major pairs such as the GBP/USD and EUR/USD.
- Volatility Is a Good Thing
Unlike more traditional trading markets, volatility can lead to big profits with forex trading. A well-timed trade could ride a large upswing in the value of a currency and result in a significant profit.
- High Liquidity Limits Exposure
The forex market boasts the largest number of participants, making it easy to fulfill any order, no matter the size of the trade.
In other words, you can easily get in or get out of the market at any time, with very little repercussions in the price of the currency.
Cons of Forex Trading
As you can imagine, the world of currency trading also comes with its own set of issues to consider before investing your money.
- With High Leverage Comes High Risk
One can invest in the forex market on leverage, up to 50:1. In other words, you can make $50 for every $1 you invest.
Of course, you can also lose that same amount, and very quickly find yourself with tremendous losses.
Investing in this manner requires advanced knowledge of leverage and strict control over emotions. You must be able to leverage only what you can afford to lose.
- Volatility Is a Bad Thing
There is no central exchange or regulator in the forex market. So when things go bad, you have nowhere to go. Whereas with a traditional company stock, stockholders can pressure management or regulators, forex traders have no such options.
For this reason, always put stop losses on your trades and use a systematic, rules-based approach to investing to protect yourself from volatility in the market.
- Forex Trading is Very Complex
Global politics and economics weigh heavily on the Forex market. You must earnestly follow the news cycle and stay abreast of trends.
Successful forex traders are adept at noticing technical indicators in the marketplace and acting on them. These indicators are based on price, volume and demand of a currency and take historical data into account. You must be able to read these indicators and apply them swiftly to be able to make profitable trades consistently.
Is Forex Worth It? The Bottom Line
Is forex worth it for you? The answer is, of course, an individual one and depends on your skills and disposition.
If you are comfortable investing in a volatile market and don’t mind using math and data, investing in forex could be both fun and profitable for you.
But if you would rather not keep up with the daily financial news cycle and prefer investing in markets with more oversight, then maybe forex trading is not the best choice for you.