Against forex trading - Essay Example

Forex Trading Outline I. Introduction The paper provides a brief of the originality of forex trading that helps to presentdescriptions of facts that illustrate reasons why individuals and business entities should not engage in forex trading. II. Body A. Arguments against forex trading.In order to demystify why forex trading is not an appropriate venture to consider, the paper offers arguments that helps to solidify the fact that forex trading is not appropriate. B. Argument for forex trading.

The paper describes reasons that encourage people to engage in forex trading. The paper further offers a counter argument to the arguments raised by those who support forex trading. III. Conclusion The paper recommends individuals and business entities to engage in other trading instruments such as blue chips that are more advantageous. Abstract Forex trading that is better depicted as a foreign exchange market provides the largest financial market in the world with a daily average turnover that reaches 1.

2 trillion US dollars. Forex trading entails the simultaneous buying and selling of one currency against another. In essence, world currencies are on a floating exchange rate that is usually traded in pairs for instance, Euro against Dollar or Pound against Yen. Trading of currencies in foreign exchange markets involve various advantages and disadvantages that will help yield a formidable argument against and for forex trading. Introduction In the twentieth century, international business operations had increased remarkably compelling companies around the world to adopt a reliable means of trading that would enable their native currencies of goods and services to trade in the global scale.

The involved participants thought that the achievement of their objectives required the business venture to establish a currency trading that would be accepted by other business ventures in order to facilitate the payments of their goods and services in forex trading but they failed. In addition, business owner thought of a currency that would store their attained profits in a value that was not susceptible to fluctuations especially from the fluctuation of their national currency’s value but failed to attain such a currency.

The intended objectives the forex trading seeks to meet are filled with numerous quandaries that make the forex trading not a favorite venture to consider. In using the national banks in a particular nation, foreign exchange markets provide room for manipulation from the national banks, as there are no external observers. The national banks act as a lethal weapon in foreign exchange markets as it provides a place where fraudsters can meet and organize how to make their moves. Foreign exchange markets expose the currency value of a particular nation to their competitors by considering the performance of their markets.

Foreign exchange market of a particular nation enables errant government officials to manipulate the currency value to a disadvantage by either raising or lowering currency through purchasing or selling large amounts of their own currency in order to match the needs of such errant government official. Argument against Forex Trading In many instances, individuals start up a forex trading with a low initial capital that can hardly sustain the business. Many currency traders believe that the venture offers a clear means to settle their debts, or to make easy money.

It is commonplace for forex trading to encourage individuals to trade large lot sizes and trade highly leveraged that amass huge returns while investing a small amount of initial capital. In foreign exchange markets, it is possible to make huge funds in a short period under a limited capital. However, a small amount of capital and outsized risk may lead an investor into a financial stupor that eliminates many from the lucrative forex trading. In any business venture and particular forex trading, risk management is a pivotal tool to improve business performance.

Poor risk management may compel the business entity or an entrepreneur from making maximum returns, which is commonplace because many people do not have the management skills (Pariev 2011). Failure to manage risk in forex trading arises when many currency traders use lot sizes that are not comparable to their account capital. Numerous forex traders encounter major setbacks when taken over by greed. The notion eventually leads such currency traders to invest their every amount once there is a move in the foreign exchange market that always occur on a daily basis.

In their effort to grab, every pip before a currency pair turns has led many greedy investors to lose the profits they have already attained. Indecisive trading has led many currency traders to incur multiple financial challenges in forex trading, which requires rigid decision-making. Indecisiveness occurs when a trader opens a trade that do not make instant profits, which lures the trader to change his or her trade direction only for the initial trade to start making profits leaving the trader in quandaries.

Trying to pick tops or bottoms has invariably subjected numerous currency traders to incur major financial losses. Currency traders who fail to recognize the trade direction falls into this dilemma as they continue to add their trade on a currency pair that is not performing well with the aim that events would turn, and they make profits. The trend leaves many such traders exposed than they had planned, which may lead to a terrible negative trade. In foreign exchange markets, numerous trading that occurs involves dealers and large organizations such as banks.

The difference that emanate between wholesale and retail pricing may pose a major challenge especially when competing with bigger organizations that may make a small entry point and sell at huge profits (Calicchio 2013). Foreign exchange market requires an experienced trading broker, which may pose as a challenge as the number of fraudsters increases making the search of such an experienced personnel hard to find. The volatility of forex trading poses major threats to the currency trader because of its unpredictability to changes.

Arguments for forex trading and their counter arguments. It is argued that forex trading is good because it provides spot currency trading that enable business ventures and entrepreneurs to eliminate intermediaries thus facilitating a direct trading. As individuals and business ventures trade directly with the market that provides for a pricing on a particular currency pair, the trading is decentralized thereby eliminating intermediaries who may make the execution an arduous affair (Sether,2009).

The lack of intermediaries is threatening because not all entrepreneurs are conversant with forex trading skills, which could be facilitated by the intermediaries. Foreign exchange markets provide no fixed lot size that enables business individuals and institutions to determine their own lot, or position size. The notion enables traders to take part in the trading activities under their discretion as the trading may provide a minimum trade size of 0.01 lots (1000) that may require small deposits such as a hundred dollars, euros, or pounds.

With such small deposits required, forex trading may lure inexperienced individuals who end up losing their money because of the poor management skills. Foreign exchange markets provide a low transaction cost that is typically built on the pricing a phenomenon known as a spread (Chen 2009). The spread entails the ensuing difference between the buying price and the selling price. The spread is usually lower than 0.1%, and it can be lesser especially in the case of larger dealers. Such a trend may be discriminatory for small traders who cannot manage to keep up with the competition of the larger dealers.

Forex trading operates on a 24- hour basis that enables business firms and entrepreneurs to carry out their trading activities seven days a week. The 24- hour operation is threatening as prices may fluctuate any time, which, therefore, calls for a 24- hour surveillance that is not attainable because individuals must engage in other compulsory activities such as sleeping. Conclusion Individuals should not consider forex trading especially with its volatility that makes it more unpredictable but instead should engage in other trading instruments such as blue chips, which are more advantageous.

Blue chips are stocks from profitable companies, which are able to function effectively during recession while paying dividends. Blue chips are less volatile as compared to forex trading. References Calicchio, S. (2013).An easy approach to the forex trading - an introductory guide on the forex trading and the most effective strategies to work in the currency market. Seattle, WA: Narcissus.me Chen, J. (2009). Essentials of Foreign Exchange Trading. Hoboken, New Jersey: John Wiley & Sons Pariev, N. (2011). Foreign exchange trading: The Golden Rules.

Ukraine: PROJECT - EDEN, Ent Sether, L. (2009). Forex trading. Cedar Falls, Iowa: W&A Pub.