Benefits & Risks

Forex market provides plenty of opportunities for investors. In order to be successful, a currency trader has to understand the benefits and risks involved in Forex trading. Foraying into foreign exchange trading would require risk taking. Traders should be willing to take the risks only when they have a complete understanding of each risk. Entering the realm of trading without this understanding would only mean big losses, trade after trade. On the other hand by understanding and managing risk, traders can reap benefits from the Forex market.

Benefits
  • High Liquidity

    • There are always buyers and sellers in the Forex market. The liquidity of the market especially in the major currency pairs has helped ensure price stability and narrow spreads.

  • 24-hour Trading

    • Forex market is open 24 hours a day as opposed to the standard markets, which have a set opening and closing time.

  • Leverage permitted

    • Forex is traded on margin, which means for a small outlay you can open up much larger position in the market which is known as leverage. This allows an investor the possibility of greatly increased profits, well beyond their actual investment capital.

  • Low Cost of Trading

    • The cost of trading has dramatically reduced over the years to the extent that the retail accounts do not need to pay any commission for their trades.
Risks
  • Volatility

    • There is always a chance that the market would move towards an unfavorable direction. Forex rates are also unpredictable most of the time. There is a need for a pre-determined risk profile. This profile will prevent the Forex dealer from taking risks that he could not manage.

  • Leverage – Double-edged sword

    • Leverage is a double-edged sword. It can significantly amplify one’s profits as well as severely amplify the losses. Trading foreign exchange with a high or even moderate level of leverage may not be suitable for all investors.

Poll

Will China press for an alternate currency to replace US Dollars as the global currency?

Yes
No

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