2Bull Forex Blog

Although cash Forex trading has its inherent risks, this market offers a number of excellent advantages for retail traders provided that they trade with a reputable and reliable broker. In this article, I will cover 3 advantages of trading in the cash Forex market.

Low Entry Costs

Retail traders with limited funds of a few hundred dollars are able to open a trading account with little difficulty. This is because the Forex market allows for high leverage trading, meaning that you can control a large amount of currency using only a fraction of your own money. However, it should be noted that leverage is a double-edged sword and one should be careful when dealing with too much leverage.

Also, new traders who are interested in test driving the Forex market are able to do so by trading in lots as little as one dollar. Of course, the potential profits (and losses) of these accounts are low, but they provide a valuable learning experience for people who wish to learn how to trade with real money.

Guaranteed Limited Risk

The maximum you can lose in Forex trading is the amount of money you put in your trading account. And although nobody wishes for this to happen to their own trading accounts, traders won’t have to worry about losing the shirt of their backs (unless they sold their shirts to put money into their trading accounts).

Real-Time Market Price Quotes

Most Forex brokers provide live, streaming price quotes at no cost via their trading platforms. This factor, together with the high liquidity of the Forex market greatly reduces the chance of any price execution slippages.

In recent years, the cash Forex market has become one of the fastest growing financial markets in the United States. The prevalence of online trading platforms and the limited legal restrictions of the Forex market have literally caused dozens of companies to try their hand at Forex brokering.

And with so many new brokering firms popping up, it’s inevitable that some of them will fall short in terms of the quality and even the morality of the services that they provide. Indeed, the biggest source of risk in cash Forex trading may not be the market risk from currency fluctuations, but from counter-party risk.

Counter-party risk can generally be defined as the risk that the cash Forex broker will perform its obligations and deal fairly with its customers. You should thus be very careful about evaluating the creditworthiness and integrity of your chosen broker, because your trading accounts (and funds) are at risk.

Why Should I Be Careful About Counter-Party Risk?

Not many people know that some Forex brokers don’t actually provide accurate market price feeds. For example, the EUR/USD pair may be trading at 1.4657 in the market, but your broker may quote you 1.4659 to buy (excluding any spreads).

Also, not many people know that many Forex brokers take the opposite position of their traders’ trades. If you enter a buy trade for the USD/JPY pair for example, your broker may then enter into a USD/JPY sell trade. This results in a conflict of interest because now if you make money, your broker loses money and vice versa.