Foreign exchange is the value at which the currencies of different countries can be bought or sold. The rate of the exchange is dependent on a number of factors, most important of which is the demand and supply factors in the free market economies. However, in some countries, the government intervenes in the determination of the exchange rate. The trading in foreign exchange is done with the same motive with which the stock market operates.
The most common platform used for Forex trading is that at cmc markets. A number of companies provide the trading opportunities to the people and charge commission for the same. Online trading is a way to determine the prices of the currencies based on the demand and supply factors of the currencies in the different countries. It also provides the much needed liquidity to the market and provides a venue to buy and sell the Forex at market determined rates.
The traders who make use of the Forex trading market are the banks, institutional investors, corporate and other retail investors.
Online Trading has Many Pros as listed below;
1. Decentralized framework for trading: The internet based Forex trading company provides a decentralized structure for trading. This enables trading even by the individuals from the general public without requiring the brokers for the same.
2. Ease of transacting: Whether it is the creation of the accounts or the actual transactions, every activity happens via the automated systems and you only to need to make the decision on buying and selling of specified currency at specific rates and on specific dates. You can operate from any place provided you are connected to the internet. You do not have to go to specific place to buy or sell the currencies. Ease of transacting is ensured with the feature of user-friendly platform and also by way of showing a demo of how to actually go about using the online trading software. Some of the companies even provide the online practice sessions on actual trading.
3. Derivative trading: It is not just the spot transactions which can be done online. The Forex trading company also provides the opportunities to trade in the derivative instruments, such as options, futures, swaps and forward contracts. The best Forex trader makes use of these instruments to cover the risks involved in the Forex trading. Derivatives provide depth in trading on the Forex markets. And, through the internet, this trading can be done with ease.
4. Best rates: Since there are a number of online Forex trading services providers, they can offer their own set of price packages to the customers, giving them more options to choose from. So, the people can choose the best Forex trader on weighing the pros and cons of these offerings. In the absence of the online trading, the traders were left with no option but to agree to what the broker had to offer. There were lesser options to make the choices. But, now one can get the best rates of commission or fees from the many online services providers.
Cons of Forex
1. Security: the emergence of hacking and cybercrime is proving as one of the major problems that the Forex trading systems are currently facing. Person with bad motives can readily hack and compromise the systems for their personal gain.
2. Failure: the development software that runs the Forex trading systems is very complex in its development as there are very many security protocols to be incorporated as well as mechanisms to ensure that they function properly, due to its complexity they can at times fail to work properly due to and this can be a massive problem.
3. Complexity: the systems that are use are very complex and they require some good amount of time in training in order for one to be up to speed with it and be able to work without any hindrances.
4. With the Forex market, there isn’t a ground to depend on when making decisions, simply because the market can be influenced by so many things and it can fluctuate. Traders cannot predict future trends using past trends.
5. Because of the high amount of leverage involved with Forex trading, it can either work in your favor or not. It is important to not invest money that you cannot lose without having a severe consequence.