Investing in FOREX online is becoming more and more popular among online traders who want to be financially independent and secured. Nowadays, more people want to become their own boss, they don’t want to work 9-5 jobs and they just want to enjoy their money. That is why there are advantages and disadvantages of trading on FOREX.
Best Forex Trading Brokers in South Africa
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When you invest in FOREX, is just you and your computer and you must know how to trade on forex. However, forex trading needs someone who is disciplined and you must have a good trading strategy. With this being said, below are advantages and disadvantages of trading on FOREX:
Advantages of trading on FOREX:
- Trading 24 hours – The Forex market opens 24 hours a day, from Monday to Friday, enabling forex traders to trade non-stop during the week. Depending on your trading schedule, you can take advantage of different time zones and their volatilities. You can also take advantage of international trading schedules if you are based in South Africa and the United States time is opened.
- High liquidity and low cost – the foreign exchange market is the world’s largest financial market in the whole world. It is also the most liquid financial market in the world, meaning when you buy or sell stock, shares or currencies, it won’t create or cause a drastic change in its buying or selling price.
- Low capital requirement and leverage – Forex trading allows investors and traders to trade only with a small portion of the initial capital. This is made possible by tight spreads and trading margins.
- Suitable for different styles of trading – You can trade currencies with different types of trading styles. Trading styles we refer to “swing trading, day trading, night trading or scalping”. However, this depends on your trading plan or schedule.
Disadvantages of trading on FOREX:
- High volatility – Forex trading is one of the highest volatile financial markets on the planet. This means that traders can make huge profits, however, high volatility can also lead to huge losses.
- Risk – trading forex is more risky. You can lose lots of money if certain currency movements don’t move to your advantage.
- Understanding of the FX market – it is important for traders to understand the fore since it’s a very complex financial market. It is important that you learn about different types of online trading before you start trading. Also come up with trading strategy or plan which is suitable for you.
- Leverage – Forex is one of the most leveraged markets. Meaning you can encounter some huge losses which might even exceed your primary deposit.
- Lack of transparency – Forex is an over-the-counter (OTC) market, which means that a trade is made between two parties without the supervision of a stock exchange.