For many investors, the thought of trading in Forex fills them with dread but used properly it can be a great opportunity to make a profit. As with any form of investment, it requires not only a financial investment but also investment of time, along with discipline to get it right.
Forex trading will ‘work’ if you’re willing to take the risk and manage it, while the risks are great, so are the potential returns.
Forex has a manageable amount of trading currencies, e.g. GPB/USD, EUR/USD etc., so you’re able to focus on certain currency pairs. Initially, it’s best to limit trading to a few pairs until you’ve built up some experience. While you can’t control the market, you do need to stay up to date with the economy and politics using news feeds or platforms like Forex.com. Not chasing your loss, careful money and risk management and analysis will make you a more successful trader.
What makes Forex ‘work’ is the liquidity of the market. Unlike stock markets, Forex allows you to invest according to your risk appetite, without the need to buy the asset as well as limiting your risk by leveraging your investment. While bonds present a low-risk, low reward investment – where the return is accumulated over a longer period of time – FX offers the potential for quicker returns.
To make your trading safer, the following may help:
- Limit your trading – devote no more than a few percentage points of your overall portfolio to forex trading in order to limit losses
- Size your bet right – develop a plan based on fundamental and technical analysis, before initiating trade or you may end up overtrading
- Set limits – one way to limit damage is to set up a “stop-loss” order, which automatically exits a position when you reach a certain price limit
- Beware of trading programs – avoid automated trading programs (expert advisers or EAs) that promise huge returns in a short time period.
- Research – retail brokerages often provide vast amounts of data and historical trading information that can help inform trades and spot trends
So to answer the question, trading does work, but it takes a lot of work and dedication, in order to avoid the high risks that are prevalent in this form of investment.