Traders in the forex market can face some adverse factors and conditions that may make successful trading more challenging than it may appear at first glance. Below are several cons of forex trading to be aware of before jumping into the market:
1. Volatility
All markets can show volatility at one time or another, and the forex market is no different. Forex traders hoping for short-term profits may be exposed to unexpected extreme volatility at times, which can make their currency trading strategies unprofitable.
2. Small Traders May Face Some Disadvantages
More than US$5 trillion is traded daily on the global forex market and the bulk of that trading is still done by major players such as banks, hedge funds and other large financial institutions. Because of the volume of their trading, and their greater access to information and technology, these players can have a natural advantage at setting prices and influencing price movements in the market.
Again, this reality is true for most markets, but it's especially apparent in the forex market. Traders must stay abreast of the latest fast-moving changes in market conditions to be sure that their currency exchanges are profitable.
3. Lighter Regulatory Protection
The forex market is an over-the-counter market, meaning trades are not carried out on a centralised exchange, and regulatory oversight is sometimes limited. Because of this, traders may need to do a "due-diligence" investigation of their broker's reputation and trading practices before signing up for an account.
Also, depending on which country they are operating in, they may also have less right to recourse if they feel they have not been treated fairly by their broker. The reduced regulation is one of the primary disadvantages of forex.
4. Fewer Residual Returns
Stocks and bonds often make regularly scheduled interest and dividend payments that can enhance the long-term value of buying an asset. However, forex trading customarily aims mostly at obtaining capital gains from appreciation of one of two currencies in a given currency pair.
On the other hand, forex positions held overnight can yield, or pay, interest. That depends on the difference in interest rates practiced in the countries issuing the currencies bought and sold. This interest is often referred to as "rollover", or "carry" interest.
1. Volatility
All markets can show volatility at one time or another, and the forex market is no different. Forex traders hoping for short-term profits may be exposed to unexpected extreme volatility at times, which can make their currency trading strategies unprofitable.
2. Small Traders May Face Some Disadvantages
More than US$5 trillion is traded daily on the global forex market and the bulk of that trading is still done by major players such as banks, hedge funds and other large financial institutions. Because of the volume of their trading, and their greater access to information and technology, these players can have a natural advantage at setting prices and influencing price movements in the market.
Again, this reality is true for most markets, but it's especially apparent in the forex market. Traders must stay abreast of the latest fast-moving changes in market conditions to be sure that their currency exchanges are profitable.
3. Lighter Regulatory Protection
The forex market is an over-the-counter market, meaning trades are not carried out on a centralised exchange, and regulatory oversight is sometimes limited. Because of this, traders may need to do a "due-diligence" investigation of their broker's reputation and trading practices before signing up for an account.
Also, depending on which country they are operating in, they may also have less right to recourse if they feel they have not been treated fairly by their broker. The reduced regulation is one of the primary disadvantages of forex.
4. Fewer Residual Returns
Stocks and bonds often make regularly scheduled interest and dividend payments that can enhance the long-term value of buying an asset. However, forex trading customarily aims mostly at obtaining capital gains from appreciation of one of two currencies in a given currency pair.
On the other hand, forex positions held overnight can yield, or pay, interest. That depends on the difference in interest rates practiced in the countries issuing the currencies bought and sold. This interest is often referred to as "rollover", or "carry" interest.