Benefits vs Risk of Forex Trading

Forex trading is not suitable to all investors. It is important that you understand the benefits as well as the risk of trading before mastering in any field of investment. Remember, you can build wealth in forex, but you can destroy it as well. By minimizing the risk, you should basically understand forex trading program.

Liquidity

Forex market is so unique that it is extremely liquid in the market, especially for the most popular currency pairs. There are up to 1.8 trillion US dollar being traded everyday. The trading volume is even 50 X larger than New York Stock Exchange. Participants are rapidly growing, from interbank 마진거래 to commercial company, non-financial company, private speculators and so forth. Unlike stocks marketing, there are always sellers and buyers on the other side. Due to its liquidity, you can stop/ limit/ open or close position freely. They always have some reason to trade in Forex.

For instance, Malaysia borrow money from Japan to build a D1, the process take 5 years, they hedge a rate first so that the fluctuating currency rate won’t affect the repayment…. Hence, the price will be more stable and not fluctuating as stock market. None of a trader could affect trend of currency.

24/7 Market

There are always buyers and sellers trading currencies in day and night. It allows you to respond even though some investment markets are closed. This minimizes the “overnight gap” risk. Normal operation starts from Sunday 5pm until Friday 4 pm at EST.

Low starting equity requirement

For day trading stocks is not an affordable investment for most people, especially those employees who earn secure income monthly. It requires the minimum of $25,000 to open a day trading account. You may doesn’t need to, if you gain satisfying profit and take it out within 3 days.

On the contrary, for Forex accounts, I have seen starting equity requirements as low as $200. We can manage forex account by credit cards. It is so easy to open an account, without much cash barrier. But …think deeper! This carries risk as well as benefits to you. What do you think?

Since the starting equity can be very low, it highly encourages more people to participate in low entry level. It gives opportunity to the investor who is low to set up “educational account ” and learn trading in minimum equity. It is a method to sharpen our skills and strategies. They can be trained to utilize strategies to set appropriate stop/limit to maximize profit.

However, it brings lesson to those who are lack of experience or financial illiteracy to take the speculative risk. It also lures people who dare to take risk without proper strategies or tools. This reckless manner of investment makes no difference with gamble. They might lose. At last, their cash will easily flowing out but can hardly understand a lesson.

If you are one of them, I suggest that you can train yourself by applying secret forex strategies by forex demo trading, or attending forex courses before you fight for your profit. See how quickly you can make or lose on trades in the real environment, but without risking your own money. It’s very important to have strategies, so that you become financial literacy. Please be the one who control your trading situation, do not being fooled by the market.

Leverage up to 400:1

You may call it margin trading. In Forex trading market, you can execute trading up to 400X of initial margin/cost. which means I can execute trade of $400 by just $1 of initial margin. A high leverage gives chance to those who build in small capital, to have huge potential. Although the profit potential is high, remember, the loss potential is equally great.

There are 10: 1, 20:1, and up to 400:1 of leverage. Most Forex brokers do this on sliding scale. The smallest account will can get the privilege of higher leverage. Example: US$200 initial margin can control up to $200,000 margin(leverage 400:1); A larger US$20,000 initial margin will be advised to control of $400,000 (leverage 20:1). It is important to aware of the size of risk rather than your starting cost. Once your account increases, your margin will drop to 400:1 then 200:1 to 20:1. However, the choices of leverage are all depends on investors’ appetite for risk.

Because of the generous margin provision, it attracts small investors. You must carefully consider your monetary objectives, level of experience and appetite to risk before deciding the leverage. Professional forex traders rarely use more than 10:1. In their opinion, high leverage speeds up high level risk of margin call.

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