Saturday, January 19, 2008
Is Forex Trading for You?
Is Forex Trading for You? With the growing popularity of electronic trading networks and forex brokerage firms that open their doors to retail traders, more and more individuals are drawn to forex trading. The forex market is highly liquid and provides the highest leverage compared with other financial ventures. At first glance, it seems like currency trading is an awesome money-making machine that will make you rich in no time and with minimal effort. As forex experts often warn, though, the forex market is not for everyone and it most likely won t make you rich overnight. The following are some of the factors to consider in gauging whether you are cut out for forex trading. 1. You have the time and willingness to study the market. Forex trading is highly technical. For novice traders, all the jargons and chartings could get very confusing and may lead to simplistic conclusions that won t do any good. Although it s not a requirement to get a degree in Economics or Finance before you start trading, it is certainly wise to do research first and try to understand how forex trading works before you put your money into it. For a more hands-on approach to learning, sign up for free demo accounts offered online by forex brokerage firms. Countless traders have lost money and grown disillusioned with forex markets because of haphazard and downright thoughtless investments they made. 2. You are able to take risks and accept failure. Let s face it. No investment is ever guaranteed although some are much more secure than others. In the case of forex, the risks are much higher and losing money is a real probability. The high leverage that allows retail traders to earn profits with relatively minimal capital can also turn against them and entail equally large losses. As a forex trader, you must accept that there are risks involved and work around them. You should also be prepared to lose money. Even the best traders fail at times. After all, it is a zero-sum game and somebody else s win could be your loss. It s just a matter of taking it in stride and moving on to make better and more financially rewarding trades. 3. You are willing to wait. Yes, patience is a virtue and it will just as well do you good in currency trading. You don t have to have open positions each trading day. It s more profitable to hold back and wait for good opportunities rather than trade everyday and end up losing capital. 4. You know when to stop. Greed is not good for your soul nor for your portfolio. A lot of traders wipe out their capital by staying too long in a trade. The thing is, just because the trend in the trade you are in is going upward doesn t mean that it will stay that way. Once you have developed a sound trading system (which takes thorough research on technical analysis and market psychology which brings you back to item number one), you would have more knowledge on the timing of opening and closing a trade. 5. You have enough money for it. It has been said time and again but it s still worth saying at this point: don t invest the money you can t afford to lose. In the nature of forex trading, you could make profits but you could also sustain losses. So don t use your retirement savings, emergency fund, or college fund as capital. And don t invest borrowed money as well. Your earnings in the forex market is still uncertain but your loan obligation is a sure thing. You already have enough risks to think about in your trade, don t make it worse with debt problems. Kristien Wilkinson is an online writer and contributor to forexmarkets.com