As a financial market, the foreign exchange market or forex market has a special structure imposed by the features and advantages that it has acquired in its developmental journey and has had an impact on the mechanism of trading and even how it manages investment risks. currencies.
Through this article, we will highlight the most important advantages and disadvantages of forex trading, how to take advantage of the advantages, and how to avoid and avoid disadvantages.
Advantages of the foreign exchange market
Great liquidity and high trading volume in forex
As mentioned earlier, forex is the largest and most liquid financial market because there are many categories traded in the market, and this is not only an advantage but also two other features that have a strong role in supporting the development. The spread of the foreign exchange market:
Instant Execution of Transaction Orders
Your foreign currency transactions are executed instantly, without delays in buy and sell orders, where there is a large number of bids and asks at all prices, unlike other illiquid financial markets where there is some kind of delay in the transaction. In procurement, for example, until the seller is available at the same price and vice versa, the execution of sales agreements is delayed until the buyer becomes eligible
Transparency of manipulating price movements
With an average daily trading volume of $6.6 trillion ($6,600 billion), traders can’t manipulate market prices in the forex market because this requires a great deal of liquidity other than what happens in the stock markets from speculation or the trader’s control over the movement of the stock price. or down.
To end this point, we answer an important question regarding this liquidity and huge trading volume in Forex:
Who trades in the foreign exchange market?
The heart of the foreign exchange market is the largest investment and commercial banks in the world that trade foreign currencies in the so-called “interbank market”.
Then two classes of traders fall out of the big investment banks. The first category is the traders who speculate and profit from currency spreads. These are mutual funds, investment management companies, hedge funds, and brokerage firms that provide forex trading to clients of small retail traders.
As for the second category, they are traders for other purposes, i.e. they do not aim to profit from trading in the foreign exchange market, but rather they want to trade currencies to obtain foreign currencies for commercial purposes such as central banks. Buying currencies in the forex market to provide foreign exchange for their governments as well as for multinational trading companies that need foreign currency to import from global markets.
Forex trading is open 24 hours and available 5 days a week
For example, there is no such thing as a forex trading session, unlike the stock market where the trading session is limited to a certain opening and closing time. No pre or post-processing can be done. In the forex market, a trader can trade forex throughout the day, regardless of his devotion or specific session date, the forex market is closed on weekends only on Saturdays and Sundays.
This happens as a result of the succession of forex trading deals through different markets and financial centers around the world, the forex trading day starts in New Zealand and then in Australia, especially the Sydney market. The representative of the period of Japan and Asia, then from Hong Kong, Singapore, and a few hours later from Bahrain in the Middle East, then in Europe, especially from London, the largest financial center not only in Europe but in the world. And finally from New York to the United States, as the day ends and a new day begins in New Zealand.
Decentralized Forex Trading – OTC
The foreign exchange market has no geographical boundaries and trading is not restricted to a particular place as the market operates via an OTC system and electronic communication networks, allowing access to the market, displaying prices, and trading from anywhere in the world. A platform or trading program for trading in the market.
Easy to follow the forex market and limit currency news
Compared to a market like the stock market, we find that there are hundreds, perhaps thousands, of stocks of publicly traded companies, which can be difficult to track, analyze and choose the best opportunities to invest or trade. In the foreign exchange market, we have a limited number of currency pairs to focus on, especially if we follow the eight most liquid and traded currencies.
Comfort of opening a real account in forex
Due to the networks, the availability of authenticators, and the proliferation of brokerage houses, any simple trader can apply to open an account with brokerage firms and open an account in a matter of minutes, but you need to be careful, there are some situations. The criteria and requirements that you must follow when choosing a forex brokerage firm.
Disadvantages of trading in the foreign exchange market
The degree of volatility and price activity
In many cases, currency prices are subject to strong fluctuations in supply and demand due to their sensitivity to various economic and political factors, causing movements that are considered violent and unpredictable, which may lead to losses of capital and speculators who do not care about capital. They are as concerned with risk management as they are with analysis.
This imbalance can mitigate their risk to some extent by following the news and economic analysis and knowing all the economic and political effects on the foreign exchange market and trying to take advantage of them as much as possible, or at least avoid trading during trading periods. The Arab Trader’s Economic Calendar provides continuous periodic tracking of the most important news, events, data, and economic reports affecting the major global economies.
Forex trading using leverage and margin system involves significant risks because leverage is a double-edged sword, the more you can use it to make maximum profits from forex, the more you can maximize losses incurred by trades if the markets move against it. is expected
Weakness of the supervisory or regulatory authority
The currency or foreign exchange market, as mentioned, is an over-the-counter market, which means that as it is called an over-the-counter market, no clearinghouse or clearinghouse regulates its transactions to the same extent as the stock market, for example. Harm the interests of merchants
To understand this point more clearly, we answer two important questions together.
1. What are the supervisory or supervisory and regulatory institutions in the foreign exchange market?
Regulatory bodies or bodies are independent bodies and organizations licensed by the state or government whose task is to supervise, regulate and monitor the work of the financial markets and monitor intermediary institutions and various financial service providers to protect investors from any manipulation. Some of these companies may do things that are against their interests.
2. What are the most important and most powerful regulatory bodies in the world?
- US NFA and CFTC
- United Kingdom FCA
- Swiss Finma
- Australia ASIC
- Canada IIROC
Hong Kong SFC