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2.3 Advantages,Disadvantages of Forex

Let us now take a look at the advantages and disadvantages of trading of the Forex

Advantages

  1. Very Liquid market. There are a lot of participants and lots of transactions happening. There is very high volume of foreign exchange being traded on a daily basis.

  2. Low insider trading. The above point leads to this fact. This is due to the amount of liquidity and the amount of quantity of exchange that is going through this particular market. As such, it is very difficult for insider trading to exist.

  3. Low Dealing Costs. The high liquidity leads to a low dealing cost in the Forex market.


Disadvantages

  1. Forex market is unregulated. That may not be an ideal thing for us as this could mean that there could be discrepancies with the trade that you took. (e.g if you call the broker and tell them that the trade did not occur at a certain price, they might respond to say that, it did). This is because the market is unregulated and there is not central place that confirms 1 exact price.

  2. High Leverage. You would need a high leverage to trade in the Forex. Even though this point has an advantage as you are able to control a large amount of money with a small amount; the disadvantage means that we do not have an exact plan. In Master the Markets, we trade everything with a quantified plan, which you will learn later in the education centre. However, it is not ideal for someone to enter a high leverage trade without a trading plan as you could lose a larger amount money within a shortest based time.

  3. High Volatility. That is not necessarily a bad thing. However, it is a bad thing when you do not know what you are doing during a trade. For Master the Markets, as we plan and enter the trade, high volatility is good as we can get the sharpest move (more money) within a shortest based time. This makes Forex unique. This is highlighted as a disadvantage because, if you do not know what you are doing, high volatility could work against you as well as for you.


Next move on to the next market.
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