Given the time most of us spend with our eyes and hands glued to our smartphones, any online activity or app that can generate some money has got to be worth a serious look. This possibly explains the recent craze in Forex trading. If you thought it was only for investment bankers and high powered Wall Street types, think again. There are dozens of apps out there, many free to download, and you can start trading in Forex in a matter of minutes.
Why trade Forex?
Most of us have bought and sold a few shares from time to time, even if it is only in our local utility company when they started dishing them out like after dinner mints, or that handful of options your employer presented to the working drones while the Executive Team collected their millions when the company floated on the stock exchange. Yet Forex seems a step beyond, and a little more specialist than a bunch of shares in Acme Explosives.
However, we are always being told not to knock something just because we don’t understand it. First off, you need to appreciate that the Forex market is huge – more than $3 trillion is traded every single day – if you added up the amount traded in every other stock and future on the planet, it would not come to a quarter of that.
All that activity and the millions of people in the market make for a liquid, and therefore safer, trading environment. While the share price of a particular company might tank in the wake of some catastrophic event or adverse media publicity (did somebody say Volkswagen diesels?), it is extremely unlikely that you will ever face that sort of hit in Forex.
You also have the advantage that it is the trading system that never sleeps. Just as it is always 5PM somewhere, it is always trading time in the Forex market.
How does it work?
Conceptually, Forex trading could not be simpler. The basic principle of swing trading just means taking advantage of the fluctuations in value between one currency and another, essentially buying when cheap, and selling when it becomes more valuable.
People have been doing it for years, and making tidy profits out of it. So why is it that if you start searching online to find out whether you can join the fray, download an app and start raking in the cash, you see so many cautionary tales about 19 traders in every 20 walking away with their fingers burned?
The answer lies in the false sense of comfort provided by that very simplicity. Nothing could be easier than downloading an app, setting up an account and starting to trade Forex, even when you’ve never done it before. Also, there is no better way of losing your money.
Predicting the future
Forex trading is easy. Successful forex trading that brings a profit is another matter, and that is where so many people go wrong. The trouble is, anyone can see what a particular trade is worth today, and what it was worth yesterday and the day before. But using this information to accurately predict where it might lie tomorrow? Now, that’s where the magic comes in.
We used the word astrology earlier, and given the challenge facing Forex traders, it can be seen as an almost mystical art. Yet the tools and indicators used by successful traders to see into the future are all based on sound mathematical principles. To trade successfully, there is no getting around the fact that you need to educate yourself on all these forex tools, from Bollinger bands to MACD indicators to the iExposure indicator in MT4. Downloading an app and trading is the easy bit. It is poring over the articles, studying the online resources and really getting to understand the sometimes contradictory dynamics that govern the Forex markets that takes all the time and effort.
With that context in mind, it becomes easier to understand why Forex trading is such an attractive proposition, and also why such a large percentage of people go into it unprepared and face the inevitable financial consequences. A fool and his money are soon parted, a little knowledge is a dangerous thing, look before you leap – just choose your favorite cliché. The bottom line is that Forex trading rewards those who go into it prepared and with all their risk management bases covered.
Managing the risk
The horror stories of people losing money are actually quite frustrating as soon as you look at Forex objectively, because it is so unnecessary and avoidable. There are two golden rules that successful traders always follow:
1) Always have a demo account to hand. For beginners, it is a place to practice trading without breaking anything, most of all your bank. And even experts find it a useful tool for trying out new strategies in safety.
2) Only risk what you can afford to lose. If no more than two percent of your trading account is at risk on a particular deal, you will never be badly hurt if things don’t go to plan.
Follow those two suggestions and you will stand the best chance of being in the happy minority and making a success of your Forex trading.