Advantages and Disadvantages of Forex Trading

First of all I would like to tell something about “day trading”. Simply, it means that you are trading on day-to-day basis and not carrying your trades to the next day. Further, whatever trades you have entered on day X, as a day trader you must close them irrespective of the amount of loss or gain going on that trade in real time. Yours books/platform/trade station must be clean within one cycle of market open and close. Now this concept applies very well to the equities where the stock market opens and closes at the specific time of the day. However, forex trading goes on 24 hours from Sunday evening (US Eastern Time) till Friday (5 PM US Eastern time). Hence, day trading may be from 12:00 AM to 12:00 AM next day. In forex this can depend on what is counted as the new trading day depending on your forex broker or what is the rollover time of your broker. (I will explain rollover time in later discussion).

Advantages of Forex:
1. 24/7 market. You can trade as an early bird or like an owl wide awake in the midnight. Therefore, you can make your own schedule.
2. Very high liquidity (means free flowing and available pool of contracts). Therefore, fill of orders in milliseconds to seconds.
3. 2 Trillion US dollars traded worldwide every day. Again related to high liquidity. The market is incredibly HUGE.
4. Since it is huge and massive market. It is not easily effected by small news and therefore trends are generally long term. Also, manipulation of forex market is not that easy as compared to stocks and equities.
Disadvantages of Forex:
1. The main disadvantage is very high risk. Traders can loose their account within minutes, if the risk is not managed properly.
2. Can be stressful since it is 24/7 and traders may want to trade more frequently. Therefore, exposing themselves to higher risk. 24/7 open market can also lure traders into overtrading and fatigue.
3. Availability of high leverage. This lures trader into taking higher risk. For new comers please see the concept of leverage here.

What is forex

I know, I know...It is probably too basic for you but for the starters "forex" is derived from the word foreign exchange. you basically "exchange" one currency with another. The first currency indicated in a pair is always a stronger one or the currency with higher value. For example in EUR/USD the euro is valued higher than the US dollar (one euro will fetch 1.3040 dollars, at the time I am writing this post). Similarly for USD/CAD, US dollar is valued higher than Canadian dollar.

Most of retail or working from home traders deal with spot forex, which means trading the lots or contracts of the specific currency at the current market price. Example; if you have meta-trader (MT4) account or any other platform, the relative price of the currency indicated in that platform at that very second of the hour of the day will be the spot price and if you make a transaction at that price then you are a spot forex trader. I hope this makes it clear. If not then feel free to comment. In my next post I will discuss what are the advantages and disadvantages of being a spot forex trader.

My first post

Hello friends,

This is my first post in this Forex (foreign exchange) blog and I will share my experiences with forex spot trading. My teacher used to say that if you are passionate about something and you practice it for 20 minutes a day - you will eventually become master of it. I do not claim myself as any master or somewhere even near to the intricacies of foreign exchange market. However, all I know is that over the last four years of looking at candle stick charts and listening to the experts, I am some what better that where I was four years back.

I got interested in forex (year 2008) after I saw the graphs and curves being analysed by one of my friend. Just for fun sake, I thought that these graphs and curves look more like a regular EKG patterns, which I used to look in any cardiac patient. However, more and more I did deep dive into them, the more complex they started appearing. The major difference between cardiac EKG and Forex charts was that EKG can be pretty much predictable, but forex charts need much more non-physiological decision points to understand any possible prediction. The rules in forex charts are data as well as heard mentality driven. By heard mentality, I mean the psychology of global traders and these may be individual traders like you or me working from their home offices or institutional traders working with very complicated software and with teams of highly trained personnel. Eventually to some extent these forex charts (graphs and curves) started to talk a little bit to me. In my future posts; I will start with discussing some tips and basics of forex and in the process will teach myself  and create benefit to my trader or incoming new trader friends.

Thanks for visiting and I will try to put in at least one post every day on my dear "forex" blog.