As internet users interested in finance, you are certain to have come across a large number of ads, posts and information about forex trading. Why? It is one of the most leveraged ways to trade the markets and is one of the more lucrative activities for brokers. Why? Because it’s fairly easy to convince the general population that they stand a chance trading currencies. Why? Who thinks they have an opinion about where the US dollar is headed? While you could probably say that very few investors would have a strong opinion on a stock like Google, most do have an opinion about gold, crude oil and currencies such as the US dollar.
How Do They Convince Users To Sign Up?
Just look at some of these attractive features:
|Forex Market||Stock Market|
|Trade Around the clock||Yes||No|
|Pay No Commissions||Yes||No|
|Leverage||100 x 1||2 x 1?|
The required capital and initial investment are probably the deal breakers. You can basically sell the possibility of trading $10,000 worth of currencies with only $100 in your account. That means you can make fortunes with small movements. Of course it also means that you can be wiped out if that same movement goes around you but that is usually not as clear:)
Forex, Greatest Market On Earth?
In many ways, the forex market is much better than others. It is the most traded market in the world in terms of notional, never runs out of liquidity, always trades at very tight spreads and good traders can do well. In fact, someone right on Forex can make billions of dollars as has been done many times including the famous George Soros trade on the British pound. To be fair, thousands are probably making a killing every day trading forex.
Forex = Casino?
I would however bet a lot of money that almost none of the clients of these small brokers that we often hear about on the internet are making profits. Why? In many ways, I think trading forex at these brokers is similar to playing a game like Black Jack in a casino. You can know how to play, have ability and be disciplined. But over time, the house will end up winning. In this case, the house is the broker. How do they do it? While the brokers do not charge commissions, they let you trade at wider spreads. It does not have to be much. If the broker takes only a few extra fractions of a % than what it can get on the market, it is basically making “risk-free” profit.
How To Trade Forex
It’s easy to conclude that trading Forex is easy. It’s not. The most critical part is to make sure that the broker you are using has very tight quotes, which over time will make a world of difference. Also, stay away from any “fail safe forex trading method”. It’s crazy that some people fall for this. Believe me, those who have such algos figured out (there are some of course), will not be selling their software for a few hundred dollars. You can certainly be inspired by other trading strategies/methods that you hear about but in th end, your success will depend on your trading. Finally, do not extend your luck. You should always trade by making sure that you can preserve a large portion of your capital. There is no way that a 2-3% move should even come close to wiping out your capital.
Have you ever tried trading Forex? Have you had success doing so?