Top 40 Advantages And Disadvantages Of Forex Trading


What are the advantages And disadvantages of forex trading?

I believe forex trading is listed as a “dangerous” activity than the normal stock investing and other method of investing.


I will try to list out the advantages and disadvantages of forex trading, and also with the advantages and disadvantages as a forex trader in this post.

Why I list out the advantages and disadvantages as a forex trader?

It’s because I believe the person who involved in the activity is also a major factor affecting the good side and the bad side of the activity.

Just like you can invest in the stock market or gamble in the stock market.

Every side of the advantages also have it side of disadvantages.

So let’s get started by…


Advantages Of Forex Trading

For Forex Trading Activity

1. Low Capital For Entry – High Leverage Provided

Forex trading requires less capital as the entry.

It is not like invest or trade in the regular stock market and commodities, more initial capital is needed.

Some of the broker allow you to open an account with just $10! 


Why it’s so low? It’s because the brokers provide high leverage to the traders.

Some broker provide 1:50 and some of them even provide up to 1:500 account!

E.g. for the 1:500, you can trade a size of $100,000 for only using $ 200.

But I will not encourage you to start with that little of capital and with such high leverage.

If you are a beginner, I strongly encourage you to open a DEMO account to test your skill set before you get into the real market.


2. High Liquidity – Biggest Market In The World

Forex market is highly liquid, there are about $5 TRILLION traded a day!

If you don’t know how much it is…

It is more than 25 times the global equity trading volume![1]

That is a lot!

In this high liquidity market, you will not be afraid of low trading volume. The trade are normally completed in milliseconds. 


3. Forex Market Work 24/5

Because it is a global market which involved countries’ currency, the market is working 24 hours a day, 5 days (Monday to Friday) a week without sleep.

With this said, there are a lot more opportunities for the traders if compared to the regular stock trading. 

Stock market is just open for trading in the office hours.

If you are busy during the office hour time, it is okay for you, it’s because you will still have a lot of time for you to trade in the market after 5p.m.. 

This gave the part-time traders having a lot more chances to finding and aiming for the right trades to get in after the working hours. (Just like me!)

On the other hand, regular stock market doesn’t provide more opportunities than the forex market.


4. Low Commission 

Low commission is only of the important factor to trade in the forex market.

Some of the forex broker offer a fixed spear and some of them offer a variable spread with certain percentage of commission too.

If compared to the regular stock market, the commission offered by forex broker is way less than regular stock broker.

When you have less commission, that means you will have higher profit with less expenses.

If you think that tiny less percentage is nothing, then you are wrong. 

As your trading activities continue, the capital you traded will compound. 

Never ignore the power of compounding.

E.g. $100 of commission saved may become $1,000++ after a long period of compounding effect. 


5. Free Services And Education Available

These days, many brokers provides a lot of free education and services to the traders who use their services.

There are brokers provide online seminar for the trader to attend. 

Some of the broker even give away “free money” to the trader when they deposit a certain amount of money and trade with them (traders must only deposit and trade with the broker that is regulated).

The free Demo Account provided by the brokers is the best services a new trader can get.

New Trader can test out their skills in the Demo account.

At the same time, the traders also can know how is the quality of the services provided by the broker.


6. High Volatility 

Since the market is a high volume traded, so it also has a high volatility compared to the other market performance.

Why high volatility is an advantage? Try to have a guess…

It’s because of increasing in opportunity for traders to trade in the market.

When the market is high volatility, the market price will not stay sideways all the time. It will always have new trend form after a short period of sideways.


7. Lots of Pairs to Trade For

When trading in the forex market we are not only looking at single pair of currency to trade on.

There are many pairs of currency for you to choose to trad for.

With this said, when the pair of currency you are looking at does not give you any signal to trade for, you can always look and analyze on the other different currency pair.

E.g. when you notice the EUR/USD is moving sideways, then you can try to find a minor currency pair such as AUD/JPY for any trading opportunity.


8. No Bull Or Bear In The Market

Market crash do not appear the same in forex trading.

Forex market comes with a pair of currency. In a pair of currency, it is just determination of which currency is stronger than the other.

E.g. in currency pair of  EUR/USD, the up trend of the market price doesn’t mean it’s a bull market. It’s just simply mean that the Euro is currently stronger than USD. On the other hand, the downtrend of the market price can be stated as the bull of USD.

Why this is an advantage?

Because you no need to worry about market crash like the normal stock investor!

You can long(buy) or short(sell) the currency pair as the market condition matched with your trading strategy.

You are gaining the control! This is super powerful compared to the normal investment such as bonds, stocks and funds. 


9. No Manipulation In Forex Market

As the forex market is the largest market in the world, there will be none or tiny of interference by the banks or government to the market.

The market is big enough that there is none of the central bank or company can manipulate the price.


Advantages As A Forex Trader

10. Location Freedom

One of the attractive parts to be a full-time trader is to have location freedom.

You do not need to work in a cubicle. 

You do not need to be in a same working location all the time.

You can work on the place you would love to (if your budget is enough).

You can go to travel and just spend some time during the time in travelling to trade.

You can work at home where your family is.

That’s the freedom that a full-time trader (the continuously profitable trader) can achieve.


11. Time Freedom

For the full-time trader, they will have the time freedom to choose or set-up their trading time or the “on-screen” time.

Depends on what types of trader they are.

Typically, full-time traders don’t have a specific working hour.

When your trade filled within a shorter period, then that means you are trading a smaller time-frame and your trade frequency is higher. 

When your trade frequency is higher, that means you have a longer “on-screen” time and always watching the market. Thus, you have less extra time.

If you want to aim for more free time, aim for being a Swing Trader or Position Trader.

Don’t aim for being a Day Trader if time freedom is your goal. 


12. Fast Profit Gain 

Trading is a fast profit activity.

You can profit from the market within minutes!

It is a fast activity compared to investing.

With the correct skill set and mind set, you can turn your money into more money fast.

With a bigger capital, you can have bigger profit from the market. The profit part of trading is normally based in percentage of your capital. 

E.g. if one of your trades help you to earn 2% return of your capital, it will be $20 profit for capital of $1,000. But if you have a capital of $100,000, it will be a profit of $2,000.

Isn’t it a very attractive profit gain?

This takes us to the next benefit which is…


13. Scalability

Forex trading can be scale. Do you heard the word of compounding before?

It is the same as in investment. 

Forex trading allow us to grow our capital by the compounding effect fast.

Trading is a fast paced, high risk and high return (if done it right) activity. Thats mean the return on trading will be much much higher than conventional investing. Thus, the compounding rate is also faster (if the profit never taken out). 

E.g. Say IF your return on trading is about 10% per month, with 12 months of trading, the compounding rate is about the same with the people that having annually ROI of 10% in the conventional investment. With that said, your compounding rate is equal to their 12 YEARS of investment! 

As your capital grow, your profit will also increase. Continue from the previous example, even your profit of a single trade is still 2%, your return in terms of money will be higher and higher as your capital grow. 


14. Having Full Control Of Risk 

Profitable forex trader having full control of their risk if the market is not at their side.

They control the risk of every trade if things go wrong.

With that said, they are controlling the size of risk they want to take to make a certain profit from the market.

The risk is on their hand. They cut the loss fast and let the profit run. 

They have a good control on the risk following their trading strategy.

This requires a certain level of training and knowledge to do it.


15. Fundamental Analysis May Not Needed

For forex trading, technical analysis is enough for a trader to profit from the market. 

Fundamental Analysis may not needed in the way that traders are not investing in it.

(But I’m not saying trader cannot profit just with fundamental analysis alone. Many of the forex trader also profit from the market just using the fundamental analysis.)

Compare to investing, you will need to do a lot of fundamental analysis to ensure the asset you buy is worth the value.

Forex trading is a short-term process (technical analysis) which a long-term effect (fundamental analysis) won’t affect too much.

For the technical analysis, it is just like the 80% of the 80/20 rule.


16. Emotional Control – Development Of High EQ

A real profitable forex trader is a group of people that have a high level of EQ.

Their high EQ is form after a long period of trading.

The fluctuation of the market and the losses they faced across the trading career made them developed high emotion control.


17. Discipline Development 

Traders often develop the discipline needed to continue the trading journey.

Without discipline trader will often trade against their trading strategy.

So a long-term profitable trader will often transform into a discipline person.

Not only that, profitable trader will have the discipline to stick to their trading strategy even they had consecutive losses. Unlike the new or unprofitable traders, changing strategy to strategy hoping to find the holy-grail-trading-strategy.


18. Learnt Risk Management

Risk Management is one of the biggest categories in forex trading. 

Learning to trade in forex meaning to learn to manage the risk. Without risk management, traders tend to over exposed their capital in the market and may have a hard time to recover their capital back after consecutive losses.

A profitable trader is equal to a person who a person who can manage risk well.

Risk management is important is important in the other investment and also in business.

This skill may help the trader to develop other skills easily without over expose themselves in the uncertainties.


19. Develop The Courage To Face of Failing

When you are a trader, you are facing failing all the time. Losses from trading and even consecutive losses will occur.

Trader will often develop the mindset to face the failure and evaluate the feedback from the failure.

This made the trader grow, improve and develop a better trading system.

This attitude is similar as an entrepreneur, facing failure and improving themselves.


20. Ease of Entry to Others Paper Investment or Trading

Successful Forex Trader often have the advantage or benefit to enter the other market.

It is because the skills developed in technical analysis can also be used in the other markets.

These market are such as stocks, funds, commodities and others.

Trading require higher skill set than regular stock investment. So, traders may use their skill learned to enter the stock investment market. 

Disadvantages of forex trading


Disadvantages Of Forex Trading

For Forex Trading Activity

1. No Central Exchange 

There is no central exchange that let the trade to take place like the bond, funds and stock. And the market maker broker is to be the private exchange.

This may cause it lake of the centralized data and the actual price may differ with the price that provided by some of the broker.


2. Education Needed – Long Learning Curve

Not like the bond and funds, there is no professional to manage the fund for you.

You are in charge of your capital.

So, you need to have knowledge about trading.

Just like any profession, you need a good education on trading. 

Unlike the normal university courses, university courses normally is well planned and every university will offer more or less the same courses.

When you want to learn trading, there is no such course for you.

Yes, there are a bunch of courses for you to choose in internet but the courses provided by the guru is different one from another.

It is due to the difference strategy they develop.

So, you need to have initiatives to read books, finding courses and testing your trading system.

It takes time to learn to be a long-term profitable forex trader, much more time than you expected.


3. Not Passive Income – No Real Asset Owned

Currency trading or forex trading is an activity of buy and sell.

This does not let us to own any of the asset since we are searching for profit, not building an asset.

Since it’s not an asset, it cannot generate passive income for you.

All you can get is profit income. It is not passive either.

A lot of hard work is needed in every of your trades.

It is not like the normal investing either. Like Real Estate investment, you just have to have a minimum work after the purchasing and renting out of the real estate. 

If you are aiming to build or acquiring an asset in the market, then forex trading or trading is not suitable for you.

But, the biggest asset in the journey of trading is yourself, with the skill you acquired, you can generate a good amount of profit income.


4. Without Guidance From Professionals

As an individual retail forex trading, there is no professional for you to ask for.

Although there are Chartered Financial Analyst, which they normally deal with banks and not providing services to the normal small capital retail traders.

All you can do is to find yourself a mentor or a profitable trader to consult. 

You also need to be careful since now a day there are many fake gurus out there. 

But there is no “Certified” profitable trader for you to look for. 


5. High Leverage

High leverage is used in forex market. This disadvantage point is the opposite part from the advantage point. 

High leverage is strong when you use it right. 

It is like a sword.

It can help you to fight the enemy or cut yourself.

When a trader over leverage, they tend to expose too much of the capital in the market. This lead to major shrink in capital when the have a losing trade.


6. Non-Regulated Broker 

When a trader picked a wrong broker, he/she will tend to be “manipulated” by the broker. The broker that is not regulated to any country regulation tend to provide the traders different or delayed market price to the traders.

This can make them collecting more commission from the traders. It’s also very dangerous when these brokers suddenly shut down and you will never have a chance to take your money back.

These non-regulated brokers only want to earn money from the traders.

So, you only want to trade with the regulated broker.

Remember, you will also need to research about the regulator that the brokers regulated with.


7. Ponzi Scam (Or Others Alike Scam)

Many, many, many, of the scam out there is using the name of “forex investment” to scam those who are greedy or ignorance (or both).

They tend to advertise that one just need to deposit money into the company account. They will let their “professional traders” to help the “investor” to trade in the market. 

Then they will just take a small percent of commission on the profit made.

The “investor” no need to do anything, they just have to TRUST them and wait to collect their money.

Some of the profit which I heard will up to a steady 20% “ROI”.

If the “investor” want to earn more, the “investor” may introduce their friend to enter the “forex investment”.

Then, they will get a certain percentage of return from the amount that their friend deposited monthly.

One thing for sure is the “investment company” is not regulated. God knows the “professional traders” in their company are even a real person or not.

In the past, I heard a lot of similar structured company. All of them are scams.


8. High Fluctuation 

As the forex market is a high fluctuation market. You cannot predict the market.

Normally you need to have an eye on the market to observe the changes.

It is not like the Stock market or the real estate market.

Stock market normally will have a slower action of moving and tend to moving uptrend (since most of the time the market is in bull market.)

The forex market however doesn’t act like that.

Because it doesn’t have bull or bear. The fluctuation form by which currency getting stronger or weaker. 

When you look at the larger time frame of the pairs of currency, it is acting like a Sine curve.


9. High Chances of Losses

Trading not only can let you lose your money fast, it also have higher chances you may lose your money in the market.

Higher chances that I mean is about more than 50% of the time.

Without a good trading plan and emotional control, profit from the market in long-term is very very difficult or impossible.

Many of the profitable traders also having most of the time taking losses in forex trading.

But, they always lose a little and win a lot.

This is how they make profit from the market in the long-term.  


Disadvantages as a Forex Trader

10. Fear

Forex trading is an activity that having high risk and high chances to lose in a trade.

Normally the new trader will have the fear that they will lose money in the market.

Especially for the trader that open a large position without proper risk management, the fear of failing in the trade will haunt them throughout the day.

Other than that, the new trader that decide to day trade in the forex market will also feel the fear of losing. Day trade requires fast pace of analysis and reaction, for the new trader, this is a difficult mission.


11. Gambling

It is easy for a new trader or a non-trader to let the forex market act as a place to gamble their money.

Just like the stock market, the gambler and new traders often try out their luck in single trade.

Gambler in the market often burn out their account and make them have a hard time to recover their capital.

Many people want to earn quick money and get rich quick in this market. This leads them to gamble in the market and their emotions control their action.

Any of the market can make a person become greedy.

But the point is how a person control their greed with a sound plan.


12. Loss Fast & Consecutive Losses

While the forex market can earn money fast, it can also let you lose your money fast.

Trading without a stop-lose often make the traders have a greater lose.

Some of the trader even lose their money without they realize it.

Even the trader have a good trading plan will also face consecutive loss.

If the trader didn’t plan well in losing trades, they will have a big portion of their capital washed out. 


13. Need In Switching Mindset

The changing of mindset meaning to step out of your comfort zone.

Many things you know in the past may not be working in forex trading.

So there will be a hard time for a new trader to catch up when they still keeping the old mindset. 

The mindset changes are examples like: 

  • Continuous learning process is needed.
  • There is no such thing as a free lunch.


14. Emotional Disturbance To Personal Life

For new traders or even the seasoned traders, emotions disturbance is the large point of disadvantage.

This occurred especially a trader just took a loss from a trade.

For the trader that cannot control their emotions, they will express their negative emotions to the others that is close to them. 

If they didn’t get quick control on their emotions, they tend to get revenge on the market and trade without following their trading strategy.

This is like a negative emotional loop, when they take a lose again in the revenge, their mood will get worse and worse.


15. Trader Responsible For All Result

Some of the people feel this is a disadvantage.

You need to bear the result from trading. 

Take all responsibility and all the blame is on you.

Thus, the people who do not want to have more responsibility on their shoulder may don’t want to be a trader.

If you feel that you don’t want to take the responsibility on the losses, forex trading may not be suitable for you. You maybe more suitable to take the investment on bonds and funds, the responsibility of investment handed to the fund managers.


16. Fundamental and Technical Analysis Overloaded

This is the disadvantage is because there are too many ways to profit in the market.

Some of the traders may have a complicated trading strategy to trade in the market and make it too difficult to profit from the market. 

Not only that, some experience traders also may face overloaded of the analysis.


17. Many Behind The Scene Works

Forex trading is more than just “trading”.

You need to plan your trade, watching the market, develop and improve your own trading strategy, revise your past win and loss trades, learn to control your emotions, writing trading journal and many more.

It is not like investing in bonds or funds. It takes up lots of time.


18. May Not Be A Stable Income Source

If you want to be a full-time forex trader, you will need to accept that you cannot have a stable income like getting a salary. 

The profit is uncertain month by month.

If you want to make a living with just trading forex, you need to set aside some funds in case you have a bad month. 

Normally, it is advisable to use only a small percentage of the profit to act as your monthly expenses. 

When you do that, it gives you a buffer when you earn less than you usually earn.


19. Not A Get-Rich-Easy

It takes a lot of work than you think. If you read this post from the top until here, you will know it is not easy.

Possibly harder than you think it would be.

It is just like the others professional career. 

You need to constantly having active input and active learning.

The most important is you need to have initiatives. Many traders quit after they realize that forex trading is not the Jackpot – easy-come-money.


20. May Not Be A Get-Rich-Quick Choice

Trading is a game of using money to make more money, with a small amount of capital, you will have difficulties to compound to a large amount of capital.

If you have a small amount of money, you will take longer time for you to grow it.

E.g. Says you have a skill to double you capital each year and you have $1,000 as your capital. To grow to $10,000, you need to have about 3 to 4 years time. If the other trader have a capital of $5,000, he can hit $10,000 in just one year.

Forex Trading can only help to maximize your compound effect but cannot help you to get rich fast.

It depends on the capital you have. 



There are also others advantages and disadvantages of forex trading.

Often the advantages of forex trading are also disadvantages. 

It is just like any of the investment or trading market.

Forex trading is just a vehicle.

You yourself need to determine that is this vehicle you need it.

Can it take you to the place you want to be in the period of time you want?

Compare to others vehicles, is this a better one?

It is all for you to decide.


If you are interested with forex trading, feel free to learn about the simple trading strategies in my other post – Trend Trading OR Support & Resistance OR Moving Average.


Thanks for spending your precious time together.

Let us grow and learn together.


Jordan V.

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