One of my colleagues introduced me in to Forex trading. Honestly, I didn’t do much trade. A couple of trades and a net loss later, I now realize that Forex trading is no different from stock trading, it requires a lot of time devotion to make a profit.
Unfortunately, I haven’t actually found any mechanism that can earn me money without putting hard work, except passive income, off-course. You can either earn decent money with hard work in your day job or you can earn serious money with same hard work in a riskier business like trading, stocks or Forex.
Any kind of trading requires you to have higher risk appetite to weather potential losses. Forex trading is no different.
Forex Trading is trading of currencies from different countries. For example, in UK the currency used is British pound or GBP, in USA it’s USD. You can trade these two currencies by buying the GBP while simultaneously selling US Dollar. This is called going long on the GBP/USD pair.
So, we are talking about two entities for a single trade, unlike in stock trading where we trade only one type of stock. That’s the fundamental difference between the two. You do not decide on the future of a single entity rather, you decide on the future of exchange rate between two currencies.
In the example above, you’ll make a profit if GBP gains with respect to dollar. Naturally, you don’t have to keep track of a lot of businesses, you only need to track political/economic condition of a few countries to put correct trade calls.
but that doesn’t make Forex trading any simpler, as it’s simpler for everyone else in the trade. To make matters more simple, 80% of Forex trades involve USD, so, American socio-economic and political environment knowledge is a must to make profit in Forex trading and covers 80% of the tracking requirement.
By amount of money involved in trade, Forex trade is by far the largest medium of trading. Few times more than the total amount of stock trades, surprised? I was! Because, I didn’t know about Forex trading much. Never heard anyone making profit from it.
Forex trade is still not a household trading medium. You and I haven’t really started with Forex trading in big way. Big banks, large businesses and currency dealers are major players in this market. And they trade with large amount of money, running in to billions of dollars.
You can learn more on this subject by attending Forex training courses or, thorough online-classes.
How can you trade Forex?
Forex trading is typically done through a broker. As a Forex trader you can choose a currency pair to trade, USD/CAD, EUR/USD, JPY/USD, etc. you should select the pair you think would see change in exchange rate. You can view the live exchange rates here.
At the time of writing this article GBP/USD ratio is 1.5980, If I buy this pair now, I want the ratio to go up. I will make a loss till the ratio stays lower than my buying price.
Like in every trade, short-term fluctuations are all speculations. sometimes local governments cheap in to buy foreign currency due to domestic demand, that raises the ratio in favor of the currency in demand. In the long-term the movement fall in line of the countries’ economies.
To get started you need to open an account with one of the Forex brokers. A typical broker supports almost all currency pairs. They come with user interface to buy/sell currencies. You can place your order from your computer. Your broker then passes on your order to international bank markets. (Interbank Market) to fill in your position.
You will be surprised to see a lot of brokers offering no-commission trading, whats the catch?
They actually will force you to buy your position at a higher price than the ongoing selling price. so don’t be fooled by the claimed honesty of your broker. Don’t get attracted to the zero commission trade offers.
You can start your online brokerage account with a very nominal balance. And, you can trade for 24 hours. No more sneaking in to the stock market in between your meetings and calls. You can trade from your home in the evening if you wish.
Almost all brokers allow margin trading, which is heck of a risk for me, but for a seasoned Forex trader, margin trading is essential for making a living.
Warning – According to statistics, 90% of traders make a loss, profiting the broker in the end. To be one of the 10% profit takers, you need to put in a lot of effort in understanding and monitoring the market on regular basis. If you are comfortable, go ahead a start Forex trading.
In the long-term Forex investor generally makes money.
Forex trading is not for people in debt, people with budget and people with low-income. If you are one of them, stay away!