I think trading psychology can be a disadvantage in forex trading. Many times, someone will demo trade for 2 months and everything will be fine. But once they put their real money into it, they start to trade differently and this can hurt them.
I don't think there is enough emphasis being put on discipline in trading. This is very important to have especially when you start trading your real money. Don't let your emotions get the best of you. Plan your trades and trade your plan!
Trade smart, and don't expect too much. Here is a helpful website that tells you some of the advantages and disadvantages of the Forex. It tells you the downfalls of having a broker, spreads, etc. Hope this helps you!
Last edited by Nica; 03-07-2009 at 03:16 PM.
Reason: link violation
i've been trading fx for a very short period of time, and i'm very excited to get started with real money. but i was wondering if there were any disadvantages to forex trading??
I am guessing that what you mean by disadvantages is comparing to other stuff such as equities, futures and options?
Coming from a stock->option->forex trader, you mostly trade directional in forex, meaning you think it will go up or down. In addition, you can't trade BOTH direction at the same time unless you open 2 accounts, but even if you do that, it won't make sense.
For options, you can use staddles which is a strategy to open a trade that makes you money if 'it' goes up or down. Imagine buying GBP/JPY both way, if it goes up you make money, if it goes down you make money. (Note: Straddles you need to be concern with IV to cover the cost of entry).
Also optioins you can use calendars to profit from sideway movement, or to use butterflies/condors to target.
For forex, maybe if you trade forex options contracts (which I am not familiar with), then you get the same 'advantage' as options.
But coming from my experience, forex gives you the advantage of instantly knowing if your decision is correct or not.
the basic disadvantage of jumping into forex with insufficient time, money and experience is that you can simply lose what you have, and to my way of thinking, thats a pretty large danger.
many are those who demo trade a large account, which provides a safety cushion for the newb, and then jumps in with a small account and finds everything they did before is not helping them.
the brokers offer large demo accounts because they know it will lull you into a false sense of security, and knowing that the majority of new traders will be men, with male driven libidos and the "who needs to look at the instructions" mentality, they know that a fool and their money are soon parted.
rushing into live trading because one is "bored" with demo's is the fastest way to have the poster stating "fool" emblazened on your nether regions.
and thats not even touching the psychological differences between suddenly having "real" money at risk vs. the "game" of the demo.
with all humility, may i suggest you demo till you're bored silly, but demo till you can consecutively WIN --- then you might consider real money !
Last edited by che quivara; 03-07-2009 at 08:03 PM.
i did think of one serious disadvantage, but is only a disadvantage when measured against the "other" trading vehicles, such as equities, commodities, futures and their ilk !
because a forex trading "day" is quite literally 24 hours, one can expect a significant price reversal half way thru that "day". For those who have accumulated profits, it would be best to get out before you watch them drop to zero, or worse still, be stop lossed out of existence.
in the other trading worlds, a day is a "work" day, and you exit with your profit before the close of the particular market, but since forex only closes for long enough to catch it breath, and for the other countries to catch up, its harder to hang onto the profit made before the stop loss monster grabs the profit and eats it like a good pizza !
those trading eminis and commodities on the spot market "can" actually do better !
One of the disadvantages of Forex considers of Forex trading is concerning the Leverage. You need to be very accurate with the execution of your trading signals and very careful with your stop loss defense. When trading on leverage if you are not watchful, a quick equity spike will wipe your position.