It’s no surprise when a newbie in trade decides to go for forex considering it’s one of the biggest and most liquid markets around the world. This doesn’t only attract novices but also seasoned traders of all kinds!
So you can say forex is pretty popular around the globe and since it runs 24/7 under a decentralized system, this trade is most people’s favourite. Plus forex trading favours all kinds of trading styles whether you’re a day trader, a position trader, or a swing trader, this trade will suit you!
But just like any other market, forex shares its advantages and disadvantages. As a starting trader, it’s crucial to know about these cons and how to minimize them. To help you out, down below is a list of forex trading disadvantages and how you can rise above them.
High In Leverage
Trades that are high in leverage are often seen as a bad thing for most traders. This is because more risks are involved, and more risk means more chances of losing money. Forex trading is known to be volatile since leverage in this trade is high.
How Can I Benefit From High Leverage In Forex?
There are tons of ways to turn high leverage into something to your advantage, for starters, here’s a list to consider:
- Come up with a strategy and stick to it.
- Ride the volatility and profit from small market movements.
- Make use of the leverage where you can start small and earn big.
- Have a risk-to-reward ratio of at least 2:1 and a high success rate.
Low Transparency
Another bad side of forex is the level of transparency. Everything directly connected to the market is handled by brokers. Even your account and trades, all pass through brokers. So all your information about your trades, the market and so on is relayed by your broker.
How Can I Deal With Low Transparency In Forex?
A way to rise above this disadvantage is by working with trustworthy and credible brokers. So before signing up with any trading brokerage, make sure they offer these characteristics:
- They’re well-known in the community.
- They offer low fees.
- They show public reviews of clients (whether it’s bad or good)
- They offer quality services and products.
Self-Learning
The forex market can be overwhelming, especially for a newbie trader. And a way to get around is by learning everything yourself. There are no requirements and credentials needed to be a forex trader, learning more about it basically benefits you overall. When it comes to trading in the foreign exchange market, choosing the right currency pairs is crucial. The currency pairs that offer the best trading opportunities depend on a variety of factors, including market volatility, liquidity, and trading volume. Traders should also consider economic and political factors that could affect currency values. Identifying the best forex currency pairs to trade requires research and analysis to make informed trading decisions. By selecting the right currency pairs, traders can maximize their trading profits and minimize their risks in the volatile forex market.
How Can I Learn Forex Efficiently?
To overcome this con, what you can do is, apply for courses, attend webinars and seminars, purchase e-books, self-study using Youtube, Google and other mediums, make use of learning material on trading platforms or even practice trading on demo accounts!
Counterpart Risks
Another thing you need to remember is that forex trading is an international market and is deemed to be pretty unregularized, so it can be hard to trust the people you’re trading with. And since the forex market is decentralized, there is no guarantee every trade you do is risk-free.
So this is another thing that’s unfortunate when forex trading, you’re not sure if your counterpart will honour your deal and pull through with the other end of their contract.
How Can I Prevent Counterpart Risk In Forex?
A way to work around this con is by knowing who you’re trading with. Make sure to ask for credentials and key information to make sure they’re legitimate. You can also use trading swaps on centralized exchanges to reduce counterpart risks.
Operational Risks
Forex trading, as mentioned earlier, operates 24/7 around the world and operates non-stop so there can be vast changes overnight every minute of every day. And this can be hard to manage occasionally.
What Can I Do To Reduce Operation Risks?
A way to reduce operational risks is by using algorithms when trading to protect the value of your investments when you’re not tending to your trades. Also, you can alter your trading strategy to avoid this risk by doing day trades.
Take away
Every trade comes with its set of cons, all you have to do as an efficient trader is to know how to prevent them. Now you know the top 5 disadvantages of forex trading and how to rise above them, use this new-found knowledge by applying it when trading.
In every volatile market, prevention and risk minimization is always key! Applying this to your trades can guarantee you better and more efficient trading in the future!