3 Disadvantages of Forex Trading
Forex trading is often a polarizing market: investors either see high levels of success, or fail to ever see much success at all. This fact makes many traders choose to invest elsewhere, such as in stocks or futures. But there are many advantages to forex trading that these investors might be missing out on. Instead of viewing the polarizing effect of forex trading as a reliable prediction of your own success, perhaps it would be better to investigate some of the major disadvantages of the market.
By understanding the negatives, you may be able to avoid them in order to make forex trading work for you. You may even find that some of these disadvantages are actually features you desire for your own trading. Let’s take a look at four major problems with the forex trading industry:
- It’s not easy to understand.
For most traders, that’s true. The way currency fluctuatesand the factors that affect it, aren’t the most transparent facts. Forex trading doesn’t make the news; currency fluctuation only gets mentioned to the general public when the dollar drops substantially, something that would be considered a total crisis in the forex market. Because of this, industry analysis isn’t wasted on what makes the value of currency rise and fall. It takes specific personal effort to track down reliable information on how currency value is determined, and what causes it to fluctuate. Traders need to understand quite a lot about foreign politics and relations between nations. These aren’t casual facts that can be picked up, but rather major fields of study that take time to learn sufficiently.
- It’s a 24-hour market.
Most traders think of this as an advantage; they can make trades the moment they see some piece of news that they believe will affect the value of their trades. Stock traders have often woken to the news that the stocks in their healthy portfolios the night before have suddenly withered and died, over the midnight hours. However, a 24-hour market can be a disadvantage for the same reason. Everyone has to sleep sometimes, and you likely have another job and a life to live. If you can’t stay on top of your forex investments the way that other traders can, you could find that a rash of overnight changes cost you. Automated software can be used to manage accounts, but no automated software is perfect.
- It’s one of the fastest markets out there.
The forex market moves at lightning speed compared to other markets. Most trades are bought and sold within minutes, maybe even under a minute in certain cases. This is great for traders who want an exciting trading experience, but it can be overwhelming for new investors, or those used to long-term stock trading. While a fast market often means that traders can make fast money, it also works the other way: it’s very easy for an investor to lose money very quickly. Additionally, it’s hard to employ any sort of strategy or analysis when the market is moving so quickly.
Clearly, there are some aspects of forex trading that make it the wrong choice for certain types of traders. Those who need to have more control over their trades are probably better off sticking to other markets. By understanding these disadvantages, potential forex traders can make better decisions when it comes to trading, and see a higher chance of success.
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