I made this thread hoping to brainstorm some pros and cons of FX as an instrument and was mostly seeking to form a discussion so feel free to contribute! 
So just thinking of some pros and cons off the top of my head:
Pros:
Leverage - to safely trade 25k USD in notional you only need 1-2k USD where as with equities one would be limited by the broker to the most common 2x leverage (institutional brokers may permit higher leverage but retail brokers typically cap margin at 50%)
Low Interest - there is a very low interest charged on FX trades on G10 Pairs, usually less 1%. Comparing this to Interactive Brokers which has 150 over libor for equities, and brokers like TD Ameritrade go has high as 7%
Low costs - an equity trade through an institutional brokerage firm can often be 5bps or more, compared to FX which often is less than 1bp on developed market currencies.
Lower correlation - FX Pairs have a much lower correlation on their returns, this means the volatility of a trade is significantly reduced by increasing how many pairs are traded.
Cons:
Close to a zero sum game - While FX is by no means a zero sum game (due to positive roll/swap, multi-national companies making transactions, and central bank intervention etc) it is very close none the less
Low volatility - while costs are low, volatility usually is too (which emerging markets being an exception). This means higher leverage and in turn higher costs are necessary to reach equivalent returns.
Buy and hold doesn't work well - this goes back to the zero sum argument, as buying and holding will achieve returns of a money market bank deposit due to rollover, while having much higher volatility. This means it's usually a better idea to just buy bonds rather than trade for swap. However it could be useful as a diversification tool when used along side equities or bonds.
Trading Opportunity - for news traders in equities, there is plenty of short term events that can produce a trade lasting for anywhere from half an hour, to a week. This is different for FX due to the fact that major economic data is only published a few times a week, meaning less diversification. This case isn't so relevant for strategies focusing on momentum or relationships between assets, but it does limit trading a bit.
As I said please feel free to contribute if you feel something from the list is missing!
So just thinking of some pros and cons off the top of my head:
Pros:
Leverage - to safely trade 25k USD in notional you only need 1-2k USD where as with equities one would be limited by the broker to the most common 2x leverage (institutional brokers may permit higher leverage but retail brokers typically cap margin at 50%)
Low Interest - there is a very low interest charged on FX trades on G10 Pairs, usually less 1%. Comparing this to Interactive Brokers which has 150 over libor for equities, and brokers like TD Ameritrade go has high as 7%
Low costs - an equity trade through an institutional brokerage firm can often be 5bps or more, compared to FX which often is less than 1bp on developed market currencies.
Lower correlation - FX Pairs have a much lower correlation on their returns, this means the volatility of a trade is significantly reduced by increasing how many pairs are traded.
Cons:
Close to a zero sum game - While FX is by no means a zero sum game (due to positive roll/swap, multi-national companies making transactions, and central bank intervention etc) it is very close none the less
Low volatility - while costs are low, volatility usually is too (which emerging markets being an exception). This means higher leverage and in turn higher costs are necessary to reach equivalent returns.
Buy and hold doesn't work well - this goes back to the zero sum argument, as buying and holding will achieve returns of a money market bank deposit due to rollover, while having much higher volatility. This means it's usually a better idea to just buy bonds rather than trade for swap. However it could be useful as a diversification tool when used along side equities or bonds.
Trading Opportunity - for news traders in equities, there is plenty of short term events that can produce a trade lasting for anywhere from half an hour, to a week. This is different for FX due to the fact that major economic data is only published a few times a week, meaning less diversification. This case isn't so relevant for strategies focusing on momentum or relationships between assets, but it does limit trading a bit.
As I said please feel free to contribute if you feel something from the list is missing!
Quant Trader - My Blog: quantstop.blogspot (dot) com
