Currency trade includes all aspects of buying and selling goods and services with the exchange of currencies at current or determined prices. This is because the foreign market is foreign decentralized or over the counter market for the trading of currencies.
There is high liquidity in this kind of trade and market transparency. The market is dynamic and it operates 24 hours. The dollar is a widely traded currency.
Pros of Currency Trade
- Able to use the leverage
In currency trade the parties involved can use leverage in that one party can take something on debt and pay later other than in barter trade.
- Profit potential
There is a potential of the seller making a profit from the commodities when the prices are high and this is the reason why many people invest in businesses.
- Low transaction costs
The transaction cost in currency is low in that the buyer will only pay for the goods or services he or she is talking directly.
- High liquidity
There is a lot of money in circulation in currency trade as compared to barter trade where they do not use money in the trade.
- Operates 24 hours
Businesses can run 24 hours a day as opposed to barter trade where the business only takes place within the agreed time.
It is easy for a buyer to access a shop and buy the goods that they are in need as opposed to barter trade whereby the parties involved are to suggest where to meet so that they may exchange their goods.
- Simple tax rules
This allows the tax collectors to make calculations of tax easily as they will be sure of the amount of tax that is imposed on the currency.
- Fewer fees and commissions
In currency trading there is transparency and this makes it possible for the parties involved not to pay high fees as they should understand why they are paying the fees.
- Less price manipulation
As the prices are centralized and they are decided upon by the central committee then the workers are not able to either increase or decrease prices of either the stocks or bonds.
- Technical analysis
Forex traders usually obtain profits using technical analysis of the price charts. The analysis is based on the history and trend of the market supply and demand.
Cons of Currency Trade
- Use of brokers
When a broker is involved in the trading it leads to a lack of transparency and this may make it possible to exploit the buyers.
- The long price determination process
The prices are determined centrally and this may take long making the investors change their minds over buying the shares.
- Risk factor
The investors carry the burden of losing the money alone as it is individually based trade hence easy for the investors to lose their money.
The fear factor discourages the investors as they do not know exactly if they are going to earn a profit on the money or lose the whole amount invested.
- Availability of scammers
Many scammers are involved in the business and this calls for the investor to be careful about which company to buy the shares from.
- It needs knowledge
For one to enter in this type of trade should have adequate knowledge about the trade and how the market operates.
- Social trading
One can get wrong information about the trade from social media and this may make someone invest in the wrong company.
- The investors have to be updated with market trends
As trading does not stop, the investors have to have up to date information about the market for them to know when it is the right time for them to sell their shares.
After getting the right information about currency trade, one may decide to venture into the business knowing that it can either result in loss or profit.