Forex trading, which is often perceived as an easy career for making money, is actually quite difficult, although very exciting.
Due to high liquidity, round-the-clock schedule and easy accessibility, Forex trading has become a popular profession, especially for people with financial education. Being your own boss and comfortably earning money using a laptop/mobile phone when it's convenient for you is sufficient motivation for both young graduates and experienced professionals to consider Forex trading as a career.
Advantages of a Forex trader's career
There are several advantages that a career as a forex trader, also known as a currency trader, gives. They include:
Low costs
Forex trading can have very low costs (brokerage services and commissions). In reality, there are no commissions – most forex brokers profit from trading stocks or other securities, where the brokerage structure varies greatly, and the trader must take into account such commissions.
Suitable for different trading styles
In the foreign exchange market, work all day, which allows transactions in its convenience, which is very beneficial for short-term traders who, as a rule, take positions for a shorter period of time (say, a few minutes to several hours). Few traders make trades outside of business hours.
For example, daylight time in Australia is night time for the east coast of the USA. A trader from the United States can trade Australian dollars during business hours in the United States, since no significant developments are expected and prices for the Australian dollar are in a stable range during such non-business hours. Such traders use trading strategies with large volumes and low profits. They are trying to make a profit on a relatively stable duration of low volatility and compensate for this with large volumes of transactions. Traders can also open long-term positions, which can last from several days to several weeks. Thus, Forex trading is very convenient.
High liquidity
Compared to any other financial markets, the forex market has the greatest amount of price manipulation and price anomalies, thereby providing narrower spreads, which leads to more efficient pricing. There is no need to worry about high volatility during the opening and closing hours or about stagnant price ranges in the afternoon, which are typical for stock markets. If no major events are expected, similar price patterns (high, medium or low volatility) can be observed throughout continuous trading.
There is no central exchange or regulator
Since it is an over-the-counter market operating worldwide, there is no central exchange or regulator for the forex market. Central banks of various countries from time to time intervene as necessary, but these are rare events that occur in extreme conditions. Most of these developments are already perceived and evaluated by the market. Such a decentralized and deregulated market helps to avoid sudden surprises. Compare this to stock markets, where a company can suddenly declare dividends or report huge losses, which will lead to huge price changes.
Such deregulation also helps to reduce costs. Orders are placed directly with the broker, who executes them independently. Another advantage of deregulated markets is the ability to open short positions, which is prohibited for some security classes in other markets.
Volatility is a trader's friend
Major currencies often exhibit strong price fluctuations. If trades are placed wisely, high volatility opens up huge opportunities for profit.
Variety of pairs for trading
There are 28 major currency pairs involving eight major currencies. The criteria for choosing a pair can be a convenient time, the structure of volatility or economic development. A forex trader who loves volatility can easily switch from one currency pair to another.
Low capital requirements
Due to the narrow spreads in points, it is easy to start trading on the foreign exchange market with a small initial capital. Without additional capital, it may be impossible to trade in other markets (for example, in the stock, futures or options markets). The availability of margin trading with a high leverage ratio (up to 50 to 1) is the cherry on the cake for Forex transactions. Although trading with such a high margin comes with its own risks, it also makes it easier to get more potential profits with limited capital.
Ease of entry
There are hundreds of fundamental analysis for long-term forex trading, which gives traders with different levels of experience a huge choice for quick entry into forex trading.
Disadvantages of a Forex trader's career
Lack of transparency
Due to the deregulated nature of the forex market, which is dominated by brokers, they actually trade against professionals. Working with brokers means that the forex market may not be completely transparent. A trader may not have any control over how his trading order is executed, may not get the best price, or may have limited views of trading quotes provided only by his chosen broker. A simple solution is to deal only with regulated brokers that fall under the competence of broker regulators. The market may not be under the control of regulators, but the activity of brokers is under control.
Comprehensive pricing process
Forex rates depend on many factors, primarily global politics or economics, which can be difficult to analyze information and obtain reliable conclusions for trading. Most of the trading in the foreign exchange market takes place using technical indicators, which is the main reason for the high volatility in the foreign exchange markets. Incorrect technical assessment will lead to a loss.
High risk, high leverage
Forex trading is available with a high leverage, which means that it is possible to make a profit/loss many times exceeding the trading capital. Forex markets allow a leverage of 50:1, so you need to have only $ 1 to open a currency position worth $ 50. While a trader can benefit from leverage, the loss increases. Forex trading can easily turn into a nightmare with losses if a person does not have a clear knowledge of leverage, an effective capital allocation scheme and strong control over emotions (for example, willingness to reduce losses).
Independent learning
In the stock market, a trader can seek professional help from portfolio managers, trading consultants and account managers. Forex traders are completely on their own, with almost no help. Disciplined and continuous self-study is a prerequisite throughout your trading career. Most beginners leave at the initial stage, primarily due to losses incurred due to limited knowledge about Forex trading and improper trading.
High volatility
Having no control over macroeconomic and geopolitical events, it is easy to incur huge losses in an extremely volatile foreign exchange market. If something goes wrong with a certain stock, shareholders can put pressure on management to initiate the necessary changes, or they can turn to regulatory authorities. Forex traders have nowhere to go. For example, when Iceland went bankrupt, traders owning the Icelandic crown could only watch.
Round-the-clock markets make it difficult to regularly monitor prices and volatility. The best approach is to set strict stop losses for all Forex trades and trade systematically using a well-planned approach.
conclusion
Forex trading has many pros and cons.
You can easily earn large sums and just as easily lose them.
The market has a great history, and you can learn how to make a profit on forex.
The main question is whether everything that the market is ready to give is suitable for you?
Due to high liquidity, round-the-clock schedule and easy accessibility, Forex trading has become a popular profession, especially for people with financial education. Being your own boss and comfortably earning money using a laptop/mobile phone when it's convenient for you is sufficient motivation for both young graduates and experienced professionals to consider Forex trading as a career.
Advantages of a Forex trader's career
There are several advantages that a career as a forex trader, also known as a currency trader, gives. They include:
Low costs
Forex trading can have very low costs (brokerage services and commissions). In reality, there are no commissions – most forex brokers profit from trading stocks or other securities, where the brokerage structure varies greatly, and the trader must take into account such commissions.
Suitable for different trading styles
In the foreign exchange market, work all day, which allows transactions in its convenience, which is very beneficial for short-term traders who, as a rule, take positions for a shorter period of time (say, a few minutes to several hours). Few traders make trades outside of business hours.
For example, daylight time in Australia is night time for the east coast of the USA. A trader from the United States can trade Australian dollars during business hours in the United States, since no significant developments are expected and prices for the Australian dollar are in a stable range during such non-business hours. Such traders use trading strategies with large volumes and low profits. They are trying to make a profit on a relatively stable duration of low volatility and compensate for this with large volumes of transactions. Traders can also open long-term positions, which can last from several days to several weeks. Thus, Forex trading is very convenient.
High liquidity
Compared to any other financial markets, the forex market has the greatest amount of price manipulation and price anomalies, thereby providing narrower spreads, which leads to more efficient pricing. There is no need to worry about high volatility during the opening and closing hours or about stagnant price ranges in the afternoon, which are typical for stock markets. If no major events are expected, similar price patterns (high, medium or low volatility) can be observed throughout continuous trading.
There is no central exchange or regulator
Since it is an over-the-counter market operating worldwide, there is no central exchange or regulator for the forex market. Central banks of various countries from time to time intervene as necessary, but these are rare events that occur in extreme conditions. Most of these developments are already perceived and evaluated by the market. Such a decentralized and deregulated market helps to avoid sudden surprises. Compare this to stock markets, where a company can suddenly declare dividends or report huge losses, which will lead to huge price changes.
Such deregulation also helps to reduce costs. Orders are placed directly with the broker, who executes them independently. Another advantage of deregulated markets is the ability to open short positions, which is prohibited for some security classes in other markets.
Volatility is a trader's friend
Major currencies often exhibit strong price fluctuations. If trades are placed wisely, high volatility opens up huge opportunities for profit.
Variety of pairs for trading
There are 28 major currency pairs involving eight major currencies. The criteria for choosing a pair can be a convenient time, the structure of volatility or economic development. A forex trader who loves volatility can easily switch from one currency pair to another.
Low capital requirements
Due to the narrow spreads in points, it is easy to start trading on the foreign exchange market with a small initial capital. Without additional capital, it may be impossible to trade in other markets (for example, in the stock, futures or options markets). The availability of margin trading with a high leverage ratio (up to 50 to 1) is the cherry on the cake for Forex transactions. Although trading with such a high margin comes with its own risks, it also makes it easier to get more potential profits with limited capital.
Ease of entry
There are hundreds of fundamental analysis for long-term forex trading, which gives traders with different levels of experience a huge choice for quick entry into forex trading.
Disadvantages of a Forex trader's career
Lack of transparency
Due to the deregulated nature of the forex market, which is dominated by brokers, they actually trade against professionals. Working with brokers means that the forex market may not be completely transparent. A trader may not have any control over how his trading order is executed, may not get the best price, or may have limited views of trading quotes provided only by his chosen broker. A simple solution is to deal only with regulated brokers that fall under the competence of broker regulators. The market may not be under the control of regulators, but the activity of brokers is under control.
Comprehensive pricing process
Forex rates depend on many factors, primarily global politics or economics, which can be difficult to analyze information and obtain reliable conclusions for trading. Most of the trading in the foreign exchange market takes place using technical indicators, which is the main reason for the high volatility in the foreign exchange markets. Incorrect technical assessment will lead to a loss.
High risk, high leverage
Forex trading is available with a high leverage, which means that it is possible to make a profit/loss many times exceeding the trading capital. Forex markets allow a leverage of 50:1, so you need to have only $ 1 to open a currency position worth $ 50. While a trader can benefit from leverage, the loss increases. Forex trading can easily turn into a nightmare with losses if a person does not have a clear knowledge of leverage, an effective capital allocation scheme and strong control over emotions (for example, willingness to reduce losses).
Independent learning
In the stock market, a trader can seek professional help from portfolio managers, trading consultants and account managers. Forex traders are completely on their own, with almost no help. Disciplined and continuous self-study is a prerequisite throughout your trading career. Most beginners leave at the initial stage, primarily due to losses incurred due to limited knowledge about Forex trading and improper trading.
High volatility
Having no control over macroeconomic and geopolitical events, it is easy to incur huge losses in an extremely volatile foreign exchange market. If something goes wrong with a certain stock, shareholders can put pressure on management to initiate the necessary changes, or they can turn to regulatory authorities. Forex traders have nowhere to go. For example, when Iceland went bankrupt, traders owning the Icelandic crown could only watch.
Round-the-clock markets make it difficult to regularly monitor prices and volatility. The best approach is to set strict stop losses for all Forex trades and trade systematically using a well-planned approach.
conclusion
Forex trading has many pros and cons.
You can easily earn large sums and just as easily lose them.
The market has a great history, and you can learn how to make a profit on forex.
The main question is whether everything that the market is ready to give is suitable for you?
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