The foreign exchange market is the place where people trade currencies. Whether people realize it or not, currencies are vital to most people throughout the world as currencies are required in order to conduct foreign business and trade. The need to exchange different currencies is perhaps the main reason behind the forex market being the most liquid financial market in the entire world. Acquaint yourself with the risks and rewards of forex trading market.
The Rewards Associated with Forex Trading
- Market remains open 24*7: The forex trading markets remain open for 24 hours, starting from 5p.m ET on Sunday to 5 p.m ET on Friday. This offers you enough flexibility to trade the market according to your busy schedule
- Leverage: Participants can leverage up to 50 times of their account value on some major forex pairs and the minor pairs offer 20 to 1 margin. However such leverage amount might change and they may not be available at all times.
- Liquidity: The cash forex markets offer excellent liquidity during any hour of the trading day. This means that you can trade huge amounts of volume with minimum market impact.
Trading opportunities: Apart from technical trading, forex market also offers opportunities to trade significant changes in different economies of the world. Economic developments often affect currency pairs directly and such situations can be capitalized.
The Risks Associated with Forex Trading
- Leverage risk: Although it has been mentioned that leverage is the biggest benefit of forex trading, yet one has to know that even when market conditions are pretty calm, leverage can lead to large gains and losses very fast. This might cause your broker to take immediate action.
- Price risk: Forex prices are quoted by using the present bid price stream and there’s no such concept of a last price. In any trading market, forex prices are driven by short term supply and long term supply and this can cause the price of the currencies to fluctuate often.
- Interest rate risk: If the interests of a nation rise, the currency will also strengthen and the investors will shift their financial assets to that nation in order to make higher returns. On the other hand, with the fall in interest rates, the investors will shift for higher returns.
So, if you’re new into forex trading, consider the risks and rewards associated with this kind of trading before taking the plunge. You can also get help of forex broker agencies like ETX Capital for seeking professional help.