Drawbacks of Forex Trading

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Drawbacks of Forex Trading

#1 Message par donmir »

We always dig out forex advantages. That's why we forget about the disadvantages which truly exist. So, today we will see forex trading disadvantages at a glance. Here we go--

  • Low Transparency

This is one of the biggest disadvantages of the foreign exchange market. Due to the decentralized and de-regularized nature of the foreign exchange market, it is dominated by brokers. And you actually have to trade against professionals.

Being broker-driven implies that the forex market might not be fully transparent. A trader might not have any control over how his trade order gets fulfilled, but you may not get the best price or may get limited views on trading quotes as furnished by your selected broker.

  • Price Determination Process

The process of price determination of foreign currency is often believed to be complex because of the composite price determination process.

The fluctuations of exchange rates are influenced by multiple reasons and factors. International politics and the economy influence the rate of the currency the most, which creates uncertainty of the price.

Forex trading is usually done on the basis of technical analysis and indicators, which generally are not adequate to determine this type of fluctuation.

  • No Centralized Exchange

Unlike stocks or futures, the spot Forex market does not have any centralized exchange or clearinghouse. Alternatively, each broker acts as its own exchange and the broker effectively becomes the market maker.

This, in fact, provides an opportunity to abuse on the part of the broker or worse. Because of the absence of a centralized exchange, we also see price variations from broker to broker.

When dealing with reputed brokers in well-regulated countries these differences will be small but you need to be well aware of this fact especially if your charting data provider is not the same as your broker, as this may lead to inconsistencies between the planned and actual execution of trades.

  • Self-Directed Learning Curve

While there is an advantage of getting tons of learning tools and materials available at no cost, it also implies a risk.

In the stock market, a trader may get professional assistance from portfolio managers, trade advisors, and relationship managers. Contrary to that, Forex traders have to trade on their own with little or no assistance.

That's why disciplined and continual self-directed learning is essential throughout the trading career.

Most beginners actually quit during the initial stage, mainly because of losses encountered due to limited forex trading knowledge and inappropriate trading.

  • High Leverage means High-Risk

Forex trading is known for providing high leverages, meaning you can get profit/loss exposure multiple times of your trading capital. Forex brokers allow leverage of as high as 200:1, so you need to have only $1 to take a forex position worth $200.

So while a trader can profit from the leverage, his risks of losses are also maximized. Thus currency trading can easily become a loss-making nightmare unless the trader takes calculated leverage and has strong money management in place.

  • High Volatility of Market

The high volatility of Forex trading can either be an advantage or a disadvantage. The change in the global policies and economy may sometimes drastically change the forecast and makes it very difficult for the traders to judge the foreign exchange market and invest money.

It can cause a huge loss to the traders if the market suddenly goes down and there is no stop loss placed in the actual trading system.

So, that's how things are going messy but most of the beginners think that it was his fault. Forex trading takes time but if you want to get it easily then I am sorry to say, it's not your game, boy. Otherwise, you can get help from a reliable source like mine. Yes, Pipshunt is really amazing with novice traders and reality reliable with their services.

I hope, you got my points.