Forex Trading - Advantages and disadvantages ~ Forex trading pip

Tuesday, August 16, 2011

Forex Trading - Advantages and disadvantages

5:21 AM

Forex Bond

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What is Forex Trading?

Forex or Foreign Exchange is the simultaneous exchange of one currency against another country. This market has a trading volume every day, both buyers and sellers than any other in the world. Put in large financial institutions around the world, the forex market is open 24 hours a day.

Forex Trading Pip

Currencies are traded in pairs. The first listed currency is known, the base currency, while the second is called the counter or quoteCurrency. In the wholesale market currencies are listed with five main figures, with the last placeholder called a point or a pip.

The forex market is one of the most important markets for speculation due to its enormous size, liquidity and tendency for currencies to move in strong trends. One aspect of trading currencies is appealing the high degree of leverage available.

Advantages of forex trading

Lever. Enormous leverage available in forex trading, often up to100:1 meaning that large profits can be generated from small margin deposits.

Liquidity. The enormous size and global trading in the forex markets means that markets are very liquid major currency pairs, trade executions almost immediately with little slippage.

The ability to go short. Since currency trading always involves buying one currency and selling another, there is no structural bias of the market. This means that a trader has the same potential to benefit from a rising orfall in the market.

Trends. In essence, the value of a country's currency through interest rates and economic strength is determined in relation to other countries. Currencies therefore have a greater tendency to trend until the change key.

Disadvantages of forex trading

Lever. With huge leverage available to forex traders the danger that the positions to take too many risks are taken into account the size of what margin call. Money effectiveManagement rules must be followed.

Brokers. Retailers need a mediator rather than directly on the interbank market. The broker is the counterparty to all transactions and is effectively what the markets. You can then increase the spreads or even refuse, during volatile trading conditions. From being a viable alternative to forex brokers use it to complete. See online futures trading for more details.

Spreads. As retailers havea broker to trade, can not cope with the interbank rates. A broker usually quote a fixed spread of 30-20 pips depending on the currency pair. The underlying interbank rate might be no more than 1 pip.

Forex is a very large market, but for most retailers dealing with brokers the odds are against them moves. Online futures trading provides a much more level playing field for most traders who want to participate in forex trading.

Forex Trading - Advantages and disadvantages