Is Forex Right For You

foreign currencyThe following post was written by guest poster Rick Decardo, who writes for Dailyforex.com.

The foreign exchange markets are extremely attractive to a large number of people. Now that they have been opened up to the common public, there are a large number of individuals that are willing to try their hand at maximizing their profits and returns on investment. However, the forex markets are not meant for everyone. While the forex market is a diverse playing field that provides opportunities for large profits, it is also a dynamic arena that can result in large losses too.

Understanding what forex trading is all about and the specific characteristics of this kind of trading is essential before you can decide whether forex trading is for you or not. Some of the positive aspects of forex trading include the fact that they are open throughout the day and night for 5 days a week. The numbers of assets or currencies that need to be tracked are limited and therefore do not take up as much time as one would need to trade in the stock markets. This kind of investment is also extremely liquid and therefore you do not have to worry about money getting locked in.

Is Forex Trading for You?

The forex markets are larger than all the stock exchanges of the world put together. When you enter the forex markets, you need to be sure that you have adequate amounts of time to invest in learning the basics of the trading. The learning curve in the case of forex trading is steep and you need to get hold of good resources that can help you learn the right fundamentals of the market. Not only will you need to understand the terminologies that are used, you will also need to learn how to interpret technical and fundamental analysis in order to be able to make informed trading decisions.

The other aspect of forex trading that you need to know is that trading in the forex markets can be stressful. There are large amounts of money involved and you need to have the gut to be able to take the right decisions. Risk management methods like stop loss and limiting lot sizes is not something that everyone can handle. A high level of control over emotions is therefore necessary.

Choosing a Forex Broker

If you feel that forex trading is something that you would try your hand at, after reading the above characteristics of the market then you need to go ahead and choose a good forex broker. As a newcomer in the area, the choice of forex broker can be a significant factor in deciding whether you succeed in your endeavor to become an experienced forex trader. Forex brokers that are good for new comers in the industry need to have a reputation in the market for a good forex training course. The trading platform should be simple and easy to follow. A large number of forex brokers allow for customization of the trading platform to suit the needs of the forex trader.

Comments

  1. A few years ago I thought about dabbling in FOREX. I was already playing around with stocks. In the end I didn’t dabble with FOREX and walked away from stock trading. It was too high stress and time consuming for me. I do however consider it as something in the future to do during my senior years.

    • You’re right, forex trading is extremely time consuming John. The spreads move in small amounts, but you’re able to leverage so much, the small moves become much more significant. Personally, I enjoying trading stocks and options. In my case, it’s hard not to do as I sit in front of a trading screen all day with CNBC in the background.

  2. I had a client who developed some excellent Forex software (so he said, and so did the firm that purchased it for over $2M). That said, it seems like a place to make tons of money….but I just can’t wrap my head around it. Not sure why.

    • I wish I knew more about programming so I could design a system like that. It really wouldn’t be that hard to implement something to look for patterns.

      I believe that trading currencies is a difficult concept to grasp because there are a lot of inverse relationships. Similar to the way bond prices and rates move in opposite directions but in a more complex manner.

  3. One thing you may one to mention in this article is that many people are confused when they enter the world of Forex that they are investing in a currency which is not the case. They are actually betting for or against a currency paired to another one. This is very confusing for many at first and seems to make little sense from an investing world, comparing far more to betting or speculating.

    Another consideration to mention is that Forex is not regulated the same as something like stock exchanges and equity markets. It is largely self regulating. This may scare a lot of potential speculators.

    Finally I would like to suggest a lot of the money to be made in Forex is in selling software, automated pip bots, newsletters, charts and the like rather than actually making money in the market. Would be traders are lured in by the promises of huge profit and the lack of transparency that is involved with stocks and equities. Most discount brokers require a valid US address, social security, tax information, minimum account balances, and trading fees. Compare that to Forex which charges the spread, often has no account balance minimum and hardly requires any background, making it available worldwide. You can see why traders are easily lured into the world of Forex.

    • That’s correct that currencies are trading in pairs – long one and short the other. That’s actually the only way they could trade if you think about it. Currencies cannot trade independently from others because their value can only be measured against something else. For example, the dollar could gain value against the Pound while always loosing value on the Canadian dollar.

  4. Maybe I’ll sound strange, but I love forex, I love to earn money this way 😀

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