What Does Mean By Forex Trading. Pros and Cons of Forex Trading
The foreign exchange market is the market to exchange foreign currencies. When a person visits a foreign, he needs the currency of that country then he exchanges his currency for that country’s currency. This currency exchange is called forex exchange and the market where these currencies are bought and sold, is called the forex market. Forex trading defines the trade of different foreign currencies under a network and all the trading is conducted over the counter platform which means there is no physical platform to conduct the market activities.
This type of trading is done among the different banks and financial institutions without any central authority. This market provides a platform where anyone can trade currencies for practical purposes as someone visits abroad then he needs foreign currency to live there and other people can trade the currencies for their big amount of profit. This profit is decided by the demand and supply of different currencies, where a person can buy a currency and can sell it whenever the price hikes. The volatility rate of currencies attracts traders to earn a lot of profit.
Forex Trading System
All the currencies are assigned a three-letter code to represent their nation’s name. There are more than 170 countries’ currencies in forex trading, that’s why it is important to give a code to each country. Like the US dollar is known as USD, the European currency is known as EUR, Japan’s currency is known as JPY and the British pound is known as GBP, etc.
In forex trading the pair of two currencies exchanges with one another like EUR-USD, JPY-USD. Let’s see the popular pairs of forex trading.
- EUR/USD
- USD/JPY
- GBP/USD
- AUD/USD
- USD/CAD
- USD/CHF
- NZD/USD
These pairs of currencies represent the exchange rate of those different currencies. It means EUR/USD defines that what is the exchange rate between Euro and US dollar. In this form left side currency is considered as the base currency and right-side currency is considered quote currency. That means how many units of quote currencies are required to buy 1 unit of the base currency. If the EUR/USD is 1.5 then 1.5 USD will be enough to buy 1 EUR. The exchange rate affects both currencies, if the rate is increased, base currency can buy more quote currency and if the rate is down base currency will not be able to buy more quote currencies.
Pros of Forex Trading
Easy to Access
In the market of forex trading, anyone can start trading with a forex account that can be made easily on the internet. Traders can do the trading 24 hours for 5 days a week which means from Monday to Friday you can do your trading at any time of the day. All the significant information regarding the forex market is available on the internet which helps every trader in trading.
Leverage
Leverage defines the ratio of a broker’s money to a trader’s own money. It means if you borrow money to invest in the trading market and you take $80 from a broker and you invest your own money of $20, this ratio of money is called the leverage ratio. In the trading market, this ratio is quite high rather than in the stock market. So, anyone can take the higher amount from the broker and invest in the market.
Faster Returns
Due to the volatility of exchange rates, making money in no time is possible. In this market, you can earn money in less time than in other types of markets. This specification attracts more investors.
Technical Help
In this market, all the necessary and fundamental information that is required to invest is available on the internet with a detailed analysis of different currencies. In another market, you have to keep all the relevant knowledge of that share or bond but in this, the forex signals telegram provides technical help itself.
Less Insider Interfere
In the market of stock, bonds, and other commodities the influence of insider information affects the market. This way they can make anyone benefit and can make anyone lose. But in the currency exchange market, it is tough to leak information because it is less centralized. This way currency market is far better than other markets.
Less Cost
The forex market is known for fewer fees and commission charges than we often see in share, bonds, mutual funds, and other markets. This specification makes forex trading less costly than other markets.
Without any regulatory body
Unlike the other markets, there are no such regulatory authorities. That means it is a decentralized market that works on the whole market’s activities. This helps keep away outsiders interfere and keeps costs at a low level.
Cons of Forex trading
Too Much Volatility
We can see volatility in each market but there is much this one. The rates of exchange change every second and continually. It might yield investors but sometimes it proves diverse and make a loss, sometimes it makes any investor insolvent too.
Not too Good for Small Traders
In forex trading, famous and big financial institutions are involved like banks of different countries. The understanding of these big bankers is far better than small investors, that does not let the small investors get benefitted.
Transparency
Due to a lack of regulatory authorities, there is no one who can regulate and authorize the transactions that sometimes suspects the transparency of this market. There is a need for a regulatory authority that can regulate the activities of brokers.
High Leverage Ratio
The leverage ratio in this market is too high. That means the amount of borrowing money is higher than the trader’s own money. If you are benefitted then you can easily pay the borrowed amount but if your money is lost then it will prove too costly and it might make you bankrupt.
No Outsider Assistance
In the market of stock, mutual funds, and other bonds you can get the advice of professionals or counselors that can make you more profitable. But in this market, you will have to do marketing on your own dependence. This way you cannot touch the significant effecting topic because you are not well versed like professionals.
