One of the more interesting and exciting options for investment is currency trading. However, before you jump in, it is important to realize that the currency market is volatile. And, with all forms of investing, it is important to realize that the higher profit potential, the higher the risk. But, with the advent of various forex trading companies and options, it is easier than ever to open a forex trading account and get started. If you are looking for some reasons to diversify your investment holdings further, Forbes Magazine offers some convincing reasons to look into currency trading.
Advantages to currency trading
Forbes looks at some of the bigger advantages associated with forex trading, such as the sheer size of the market and the possibilities. Additionally, it is fairly easy to get started in currency trading; many companies allow you to open a forex trading account for as little as $250. Not only that, but there are tax advantages, according to Forbes:
Currently, short-term capital gains are taxed at your current tax rate, and long-term capital gains are taxed at only 15%. Obviously, it is much better to pay less in taxes. In the Forex market, much to investors’ delight, it doesn’t matter if you take your profits one minute after you enter a trade, or one month after you enter a trade: the first 40 percent of your profits are taxed at short-term capital gains rates, and the remaining sixty percent is taxed at long-term capital gains rates.
And, without commissions for currency trading institutions (they make money on what is known as the spread), and with the ability to execute trades anytime (there’s a market open somewhere in the world, no matter the time of day), forex trading can mean more profits for you, if you are careful. But, no matter how good something sounds, there is always a down side. Before jumping into forex trading, consider the disadvantages.
Disadvantages to currency trading
As with all investments, you run the risk of losing money in forex trading. The same concept of leverage that works so well in your favor when it comes to profits works in the opposite way when it comes to losses. Make sure each of your currency trading orders has a stop-loss on it to help limit the damage if your position moves against you. The currency market is notoriously volatile, and so it is important to stay on top of things when forex trading.
Forex trading can truly be a profitable way to diversify your investment holdings. However, it is important to also remember that it is an investment, and that you should approach it carefully.