Is It Worth Becoming A Forex Trader?
The Internet has made Forex trading very easy for retail traders. In the past, only large companies, extremely wealthy individuals, and hedge funds could trade currencies as it requires a huge capital. But today, the Internet has made it easy for traders to gain access to Forex markets worldwide through online brokerage accounts. Traders can also take advantage of leverage to open large trades at low costs and boost their trading profits.
Foreign exchange, which is also known as FX, involves changing a currency into another for purposes of tourism, trade, or commerce. The FX market is an international market for the exchange of one national currency for another. Currencies are always traded in pairs.
Forex has no central market. Instead, FX trading is done electronically through computer networks across the world. The FX market is open round the clock, five days per week, and national currencies are traded all over the world in major economic centres such as Tokyo, New York, Frankfurt, Paris, Hong Kong, Singapore, Sydney, and others.
When a trading day comes to an end in the UK, it begins in Hong Kong and Tokyo. The FX market, therefore, is available all time and the price quotes keep changing every second.
Pros of Trading Forex
The following are the pros of trading Forex:
- The FX markets have the largest daily trading volume across the globe. Therefore, they offer a lot of liquidity, making it easy for you to enter and exit trade positions in the shortest possible time at very tight spreads.
- The FX market is available round the clock. An FX trading start starts in Australia and ends in New York, the major centres being Hong Kong, Sydney, Tokyo, Frankfurt, New York, and others. You can trade currencies throughout the day, five days per week.
- FX traders aren’t restricted by regulations such as those that govern other markets such as options, stocks, and futures. FX trading has no central regulatory body, central exchange, or clearing house. Short selling is always possible because you are just selling a currency to buy another.
- Leverage is available for up to 50:1 if you are living in the US and can be higher in other countries.
- Leverage allows you to open a trading position for a percentage of the total cost of the trade. However, leverage can magnify both losses and profits and must be used with care.
6 Risks of Forex Trading
FX trading can be exciting and profitable, but it is associated with a variety of risks, as follows:
- Leverage:The biggest advantage of FX trading is also its biggest disadvantage. Leverage allows you to enter a trade for a small amount. While this can boost your profit, it can also magnify your losses. In the worst case, you can lose even the amount you invested in the trade.
- Political and Economic Risks:Financial and political events, including elections, can have a major impact on the value of a country’s currency and can create risks for FX traders.
- Interest Rate Risks:The interest rates of a country have a major impact on the value of its currency. Countries raise their interest rates to attract investors and this strengthens its currency. If the country’s interest rates fall, it drives investors away and weakens its currency.
To put it very simply, interest rate risk is actually the risk generated by changes in the value of a country’s currency. Interest rates are of great importance to multinational companies or companies that export their services and products on a regular basis. A multinational company’s margins and profits are directly related to the exchange rates of the countries where they operate.
- Volatility Risk:Volatility refers to fluctuations in the value of currencies, and traders must take volatility into consideration while trading currencies.
- Broker Risk:If you do business with the wrong broker, you are sure to run into huge loss, which is why you should thoroughly research the broker before signing up, making a deposit, and opening a trade position. Not all FX brokers are reputed or licensed, and a few of them only want to profit from your losses.
- Devaluation Risk:Governments sometimes devalue their currency to correct imbalance in trade. When devaluation happens, the export value decreases, making exports affordable in international markets. When a country devalues its currency, it also has to raise interest rates to beat inflation.
Is Forex Trading Worth It?
So, should you become a Forex trading and handle all the risks associated with FX trading? Is it really worthy of your time, money, and efforts?
A number of people get into FX trading and make a profit out of it. Therefore, FX trading is definitely worth it. At the same time, FX trading is not a “get rich quick scheme,” which will turn you into a millionaire overnight. Also, you cannot consider FX trading to be a full-time job that can help you pay all your bills, take care of your family, and live a decent life.
Consider FX trading to be a great investment opportunity, not something that can replace your nine-to-five job. Only then will it be truly worthy of your time, efforts, and money.
Also, you cannot trade currencies if you do not have a proper income. Trading currencies requires a lot of capital, and you cannot invest money that you cannot afford to lose in currencies. If you make the wrong trading decision or the market doesn’t behave in a favourable way, you are going to feel the pinch. So, trade Forex only if you have a decent income, savings, and can afford to lose the money you have invested.
So, to become a successful FX trader, you need to have a steady source of income. Second, you have to invest a lot of time in learning the basics of FX trading and mastering various FX trading strategies. Then you can use a small portion of your income or your savings to trade currencies and grow your wealth.