Advantages and Risks involved in Forex trading

Advantages and Risks involved in Forex trading

When compared to the other markets as the stock market and other such markets, Forex market is very convenient and better area for investment. It is an investment where in the Forex traders can be flexible and can have ample returns earning profits as they desire. Some advantages of Forex trading would be listed below:

• Commission: There is absolutely “no commission” existing in a Forex trading. There isn’t any aspect called, exchange fees, entry fees, broker fees, government fees etc. Even though there are brokers involved in Forex trading, their fees are paid through a system called “Bid Ask Spread”.
• No middlemen involved: Forex trading is a direct opportunity of trade and does not include any middle men or agents.
• No fixed bunch: Unlike futures markets, there is a minimum limit defined in Forex trading. In spot Forex, the Forex trader can decide on the amount they want to deal with.
• Transaction cost: The transaction cost of a Forex trade is as low as 0.1% in normal market conditions and in certain other circumstances it can even go down up to 0.07%.
• 24 hours market: A Forex market is a 24 hours market. This is basically because, the Forex market isn’t confined to any geographical boundaries which also indicates that there are people belonging to different time zones. Therefore, this Forex market is literally a 24 hours market. A Forex trader can make his trade at any time of the hour.
• No ruling the market for long: Forex market includes billions of Forex traders around the world and so it is very huge that spreads around the entire globe. Due to this, no one can rule the market for long.
• Leverage: Forex market is a sort of market where a Forex trader can earn a huge profit with a minimum of risky capital.
• Liquidity:  The Forex market is so enormous and this is one reason to its high liquidity. There is always someone to trade with.

These were a few advantages of Forex Trading. But even though Forex trading seems very profitable and risk free, it of course involves risks. A Forex trader must be of full knowledge of the good and bad before they plunge in Forex trading. A few of the risks involved would be:

• Money rate risk:  There are always chances for the money value to fall down dramatically, without any limitations. Even though a stop loss order can control this loss, it is a risk to remember.
• Interest rate risk: This is a risk when the interest of the different currencies dealt with has a massive difference.
• Credit risk: This is a risk that happens when the trader on the other end is not in a position to meet the credit requirements of the Forex trade involving situations as Bankruptcy etc.
• Country risk: This risk arises when the government hinders the Forex transaction. In certain cases, the government of the currencies dealt in the Forex trade restricts the currency outflow or in some way obstacles the Forex transaction.

These were a few of the risks involved in Forex trading. Therefore, this implies that Forex is not an investment opportunity that does not have any flaws. It does have its own risks and disadvantages, but when compared to others, it wins the argument of being the best investment opportunity.