Category: Disadvantages

Country Risk

When considering the options to invest in currencies, you must evaluate the structure and stability of their issuing country.  In many developing countries, exchange rates are fixed to a leading currency such as the US dollar. In this condition, central banks must maintain adequate reserves to maintain a fixed...
Read More

Risk from Scammers

One of the major risks or disadvantages of Forex market is that there are a lot of scammers who are ready to draw down the money from the investor. So you have to be very careful about choosing a trustworthy and reliable broker who won’t cheat and can give...
Read More

Interest Rate Risks

Variations in interest rates of a country have an effect on currency exchange rates. Such as if a country’s interest rates rise, its currency will strengthen due to an increased inflow of investments in that country’s assets, as people would expect higher returns. Alternatively, if interest rates fall, its...
Read More

Social Trading

Free exchange of information on the internet and social platform enables an individual to easily look up to the forex market’s condition and invest without any deep analysis. This is called Social Trading. Such kind of social trading imposes greater risk on your trading career. The main disadvantage of...
Read More

High Volatility of Market

The high volatility of the Forex trading can either be an advantage or a disadvantage. The change in the global policies and economy may sometimes drastically change the forecast and makes it very difficult for the traders to judge the foreign exchange market and invest money. It can cause...
Read More

High Leverage means High-Risk

Forex trading is known for providing high leverages, meaning you can get profit/loss exposure multiple times of your trading capital. Forex brokers allow leverage of as high as 200:1, so you need to have only $1 to take a forex position worth $200. So while a trader can profit from...
Read More

No Centralized Exchange

Unlike stocks or futures the spot Forex market does not have any centralized exchange or clearinghouse. Alternatively, each broker acts as its own exchange and the broker effectively becomes the market maker.  This, in fact, provides an opportunity to abuse on the part of the broker or worse. Because of...
Read More

Price Determination Process

The process of price determination of foreign currency is often believed to be complex because of the composite price determination process. The fluctuations of exchange rates are influenced by multiple reasons and factors. The international politics and economy influence the rate of the currency the most, which creates uncertainty of...
Read More

Low Transparency

This is one of the biggest disadvantages of foreign exchange market. Due to the decentralized and de-regularized nature of the foreign exchange market, it is dominated by brokers. And you actually have to trade against professionals. Being broker-driven implies that the forex market might not be fully transparent. A...
Read More