Disadvantages of the Forex Market

High Risk of Investing

Trading on the Forex market carries a high level of risk.

In addition to being an advantage, the high degree of leverage can also work against you, especially if you are inexperienced in the world of investing. It is important to do all the research necessary before entering the Forex market. Consult a financial advisor, read Forex books, speak with Forex professionals before you attempt to become a Forex trader yourself.

No Exchange

Despite this also being an advantage, some Forex professionals say that the lack of a central exchange (or a number of central exchanges) is also a disadvantage. Some traders find comfort in the support of an exchange for their transactions. Also, the lack of a centralized exchange can lead to a discrepancy among information from one bank to the next, leading to the possibility of uninformed trading activities

The Complex Nature of the Market

A concern for many dealing with the Forex market is the factors that affect exchange rates and currency value (see Factors affecting currency trading). Unforeseen political crises and economic downturns can significantly affect a trader’s account or a bank’s foreign exchange practices.

Forex Scams

Unfortunately, according to The Wall Street Journal, Forex scams are common in the Forex market. A Forex scam is the model used by brokers/investors with an intention to embezzle traders’ actives by offering them fast and significant profits earned by risky trading. Usually the scam involves an investment with an unusually high, and quick, return. The fact that the investment is usually relatively small draws investors to this shady aspect of the Forex market.