Winpips – Pros of Trading Forex
Forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity. 3 This makes it easy to enter and exit a position in any of the major currencies within a fraction of a second for a small spread in most market conditions.
Winpips – The forex market is traded 24 hours a day, five and a half days a week—starting each day in Australia and ending in New York. The broad time horizon and coverage offer traders several opportunities to make profits or cover losses. The major forex market centers are Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich.
The extensive use of leverage in forex trading means that you can start with little capital and multiply your profits. Automation of forex markets lends itself well to rapid execution of trading strategies.
Forex trading generally follows the same rules as regular trading and requires much less initial capital; therefore, it is easier to start trading forex compared to stocks.
Winpips – The forex market is more decentralized than traditional stock or bond markets. There is no centralized exchange that dominates currency trade operations, and the potential for manipulation—through insider information about a company or stock—is lower.
Winpips – Cons of Trading Forex
Even though they are the most liquid markets in the world, forex trades are much more volatile than regular markets.
Extreme amounts of leverage have led to many dealers becoming insolvent unexpectedly.
Winpips – Banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own. Leverage in the range of 100:1 is not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account.
Winpips – Trading currencies productively requires an understanding of economic fundamentals and indicators. A currency trader needs to have a big-picture understanding of the economies of the various countries and their interconnectedness to grasp the fundamentals that drive currency values.
The decentralized nature of forex markets means that it is less accountable to regulation than other financial markets. The extent and nature of regulation in forex markets depend on the jurisdiction of trading.
Forex markets lack instruments that provide regular income, such as regular dividend payments, which might make them attractive to investors who are not interested in exponential returns.