Most investors in the modern market choose Forex to join the global financial world and start trading. This fast-growing market is considered the most suitable for beginners in the world of trading.

Popular banks such as JP Morgan and UBS, as well as various financial institutions and brokers are economic entities through which investors can buy and sell currencies of various countries, such as US dollars, euros, etc. The Forex market allows trading any currencies, depending on the investment strategy of each trader.

 Advantages of Forex

Trading on the Forex market has gained immense popularity in the financial world due to its numerous advantages. Below is a list of them and a brief analysis of each, which will explain why so many investors choose this type of market.

Global Financial Market                                                                                               

One of the most significant advantages of the Forex market is its popularity in the world of trading. Over the past two decades, the foreign exchange market has spread across the globe, becoming a global financial market used by traders all over the world – around 195 countries are part of Forex. According to official data, the amount of transactions made through Forex platforms exceeds $3.6 trillion on average per day. This makes it the largest global market with potential for further development and massive scalability.

Wide range of currency pairs                                                                                     

The variety of trading instruments is another advantage of Forex. It allows investors to choose the currency pair they want to trade. With a wide range of options, traders can buy and sell assets depending on their investment strategy. Some currency pairs are easier to trade than others due to their high volatility. According to experts, there are about 128 pairs that traders can trade. Some popular currency pairs are:

• Euro/US Dollar (EUR/USD);
• US Dollar/Japanese Yen (USD/JPY);
• British pound / US dollar (GBP/USD);
• US dollar / Canadian dollar (USD/CAD);
• Australian dollar / US dollar (AUD/USD).

Suitable for beginners

Forex is considered the most suitable market for beginner traders. It does not require a large initial capital and involves a fairly low level of risk. Moreover, most Forex platforms provide a free demo account, allowing beginners to feel the market movement and develop a trading strategy without risking their finances. Low entry threshold and no commissions on most account types are also undeniable advantages for amateur traders.

Low entry threshold

Compared to other markets, entering the Forex market does not require large initial investments. Relatively small investments can bring quite high profits. For example, a beginner with an initial capital of $ 500 can trade with a leverage of 1:500. This can bring significant profits, but also carries the risk of high potential losses.

No commissions on most accounts

Forex trading is characterized by low or no trading fees. The currency market often does not require any commissions for any transactions, as brokers can make a profit from the “spread”.

High liquidity

Since the Forex currency market is traded by a huge number of participants, it offers the highest liquidity compared to other markets. The Forex financial market operates 24 hours a day and, thanks to modern technology, is accessible from anywhere in the world. Thus, anyone can buy or sell a currency with a simple click of a button. Moreover, with the help of sophisticated artificial intelligence algorithms, investors can automate the trading process, which makes investing even more flexible. As a result, there is always a potential counterparty waiting to buy or sell an asset.

High returns due to volatility

Price volatility is one of the most important factors that help investors decide on their next trading move. For short-term traders, volatility is crucial, as it reflects the hourly changes in the value of an asset. Moreover, swing traders use this indicator to determine when it is the right time to enter or exit the market. For long-term investors, the volatility of the Forex market is also of fundamental importance. That is why they believe that a buy and hold strategy can bring higher profits in the long run.

Hedging risks

Another significant advantage of Forex is the ability to hedge. This is an effective method that helps investors eliminate potential risks or reduce potential losses. When traders talk about hedging techniques in Forex, they mean the strategic move of opening multiple positions. The idea is to limit potential losses to an acceptable level. Most investors hedge Forex by investing in different but related currency pairs. This way, when a long position is opened on one pair, a short position is opened on another, and then the profit on one position can cover the loss on the other.

Trading 24 hours a day

An important difference between the stock market and the Forex market is that the latter operates 24 hours a day, 5 days a week. There are four main trading sessions:

• Sydney;
• Tokyo;
• London;
• New York.

Traders can start their working day on the Forex market from the opening of the Sydney session to the closing of the New York session. Also, the main trading sessions can be called as follows:

• Pacific session (Sydney);
• Asian session (Tokyo);
• European session (London);
• American session (New York).

Suitable for various trading strategies

Before a novice investor opens a deal on Forex, he needs to determine the strategy according to which trading will be conducted. Moreover, due to high volumes and liquidity, it is possible to open and close deals on the Forex market at any time.

Convenient automation

Forex is a relatively new type of financial market, which has recently gained wide popularity. A large number of developers are constantly working to improve the work of online trading systems on the market and adapt Forex trading platforms to modern financial requirements. Thus, technological innovations help trading on the Forex market to become even more widespread, since anyone can trade from anywhere in the world.

No Fixed Lot Size                                                                                                         

There is no fixed lot size in the Forex market. Therefore, traders can start with the trade size of their choice. There are three types of lots:

• A micro lot is 1,000 units of currency;
• A mini lot is 10,000 units of currency;
• A standard lot is 100,000 units of currency.

A micro lot is usually used by beginners and helps to manage risks more effectively. Traders choose the size of a trade depending on the number of lots they want to buy or sell.
No central exchange involved
Forex does not have a single centralized governing body, so it is a decentralized market. Thus, all transactions can be made from anywhere in the world, and since it is open 24 hours a day, at any time of the day.

For example, if an investor is in Europe, he can trade during the working hours of the American exchange and monitor the movement of the currency he is interested in. Forex traders can buy or sell securities and monitor exchange rates from different dealers around the world via the Internet.

Low transaction costs

Forex has very low transaction fees compared to the stock market. This is because brokers make their profits in “points in percentage” (pips). Moreover, some brokers can offer very low spreads, the difference between buying and selling, and reduce or even eliminate trader costs. Investors who choose the Forex market can increase their profits by avoiding commissions charged by exchanges for deposits and other trading operations that entail additional expenses on the stock exchange.

Disadvantages of the Forex Market

Lack of transparency

Despite the high popularity of Forex, it also has its disadvantages. The Forex market is based on decentralized technology, so trading on it can carry the risks outlined below:

Operational risks.

 The Forex market operates 24 hours a day without a break. Traders cannot track changes in the price chart every second, so they use automated algorithms to protect their interests and their finances. Therefore, traders need to be constantly aware of how the technology works, otherwise they can face large losses at night or on weekends.

Leverage risks.

Forex brokers offer traders high leverage. Beginners may not understand the dangers that this investment instrument hides and lose all their finances in a matter of minutes.

Complex exchange rate formation process

A major problem in the Forex market is the difficulty of determining the value of a currency pair, which can be affected by various factors such as politics, economic changes, central bank actions, etc. This is a key issue to consider, as a wrong interpretation of the chart can lead to significant losses.

High volatility

When traders talk about volatility in Forex, they mean how big the rise and fall of a currency pair over a certain period of time. The bigger these rises and falls, the higher the volatility. Sharp price changes can cause a feeling of uncertainty, but sometimes traders see them as an opportunity to make a big profit. However, if the wrong trading decisions are made, volatility can lead to uncontrollable losses

We wish you successful trading with ArtСap !