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Forex market has been growing with the increase in tourism and foreign trades. It is one of the markets which is attracting a lot of traders next to the stock exchange. But as much as it can provide profits to the investors, it has its own disadvantages which will not help you make any money. Let us look at the advantages and disadvantages to figure out how profitable it can be for traders to invest in forex.
One of the qualities why forex trading is attracting a large number of traders is because it is easily accessible by individual traders. Traders can set up their own forex accounts and start trading from their comfort space. Forex trading can be easily done online, and one can easily keep track of pricing, news, price charts, and strategies through online trading. The market is accessible 24 hours for 5 days a week so the traders can easily make space for forex inbetween their daily routine.
Leverage can make small yet significant gains in trading. Chances of getting leverage in the forex market is higher than most of the other markets today. The traders can get the leverage of 100 for 1, or more, depending upon the country they are operating from.
Potential for fast returns
Forex is a market with high liquidity, and one can gain instant profits with the right strategies on the first day of trading. It is a fast-moving market and requires higher leverage to benefit forex traders. A trader needs to check different markets and be able to predict future returns in the forex market than in some other markets. This way, traders can expect faster returns.
Forex market is as volatile as other markets and sometimes can turn out to me totally unprofitable. Sometimes the forex traders can get short term profits and then face extreme volatility in forex, which brings their earlier profits to nil. This can be one of the risks that the traders need to accept before investing in the forex market.
Lighter regulatory protection
Since it is an individual’s market, the security of the regulatory oversight can sometimes be limited. Traders will always have to careful of their broker’s profile before carrying out any trading activities or signing up on a trading website. Also depending upong the area they are trading from, they need to be aware of what is the current status of forex martket to make sure that their broker is trating them fairly.
Fewer Residual returns
Investing in stocks, real estate, and bonds often make scheduled interest and dividend payments that can enchance the value of a purchased asset for a long time. However, forex trading aims at the gains by comparing two different currencies. The profits depend upong the different in the interest rates in two countries in between which the trader is buying or selling the currencies.
Forex trading is said to have a history that goes back to the times when the currencies were of silver and gold. The Greeks and Egyptians traded the goods and coins according to their weights and size. Later during the Roman empire, the currency was centralized under a government-run monopoly, and since then the currency trading has always existed according to the monetary policies of central banks. Forex trading has become one of the biggest, most liquid and accessible trading markets in the world. Let us look at the history of forex to understand the historical events which are responsible for shaping this market.
During 6000BC, when the currencies were not introduced, people use to trade goods for other goods. The process is known as the barter system. The system started evolving when one type of goods, such as salt and spices, became a popular medium of exchange. They became the first medium of foreign exchange as the spices were shipped to diffenet regions for trade.
Introduction of currency
In the 6th century BC, first gold coins were produced as a new medium of exchange. Ships would now sail to trade goods in exchange for a uniformed, portable and durable mode of value. The coins were easily divisible and acceptable for any kind of goods. The only drawback was the weight and limited availability. Later in the 1800s, the gold was made into a standard, and the government would redeem an amount of paper for the value of gold. But it only lasted till World War I when Europen countries had to suspend the gold standard so that they could print more money for the war. This destroyed the gold standard, and many countries faced a recession during the years of war.
The Bretton Woods System
After the first and second world war ended, the US, Great Britain, and France met at the United Nations Monetary and Financial Conference. The aim of this conference was to design a new global economic order. The Bretton Woods Conference compared the currencies of several countries so that the currencies can be adjusted in accordance with each other for fair trade purpose. The US dollar was in accordance with gold as it has the most gold reserve in the world at that time, and the other countries had to transact in the US Dollar.
In the 1990s, the currency markets to another lead with the introduction if the internet. The currency markets started growing much faster as compared to past trading and forex became accessible to people while sitting back at their home. Now trading became much easier and did not require any traders, brokers, or telephones. These advances in communication gave way to capitalism and globalization and individuals today have access to all the electronic communications networks used by banks and professional traders.
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