The forex market is often touted as one of the best ways to make a quick and easy profit. As the biggest financial market on the planet, with an approximate $4 trillion traded each day and as one that is simple to access, it is easy to see why this is common opinion. However, for the individual trader, is currency trading a pastime that is really worthwhile?
Pluses and negatives
There are a number of benefits to be found in forex trading. This includes 24-7 trading, allowing traders to place their trades at any time of the day or night and to adjust trading whenever they need to, leverage, which allows small traders to make big trades without putting strain on their bank accounts and low transaction costs, with costs built into the price of a transaction. All of these make the thought of playing the forex market an alluring concept.
However, despite all the plus points, it is well worth remembering that the foreign exchange market is still a high-risk gamble and its fast paced existence can prove detrimental to newcomers and experienced traders alike. While there is a lot of money to be made, on the flipside just a single bad trade can negate a whole account.
A sensible approach
So what can traders do to trade safely? Number one would be to set limits. In general, it is recommended that small traders limit any damages by trading only a small percentage of their portfolio on the forex market. Setting up a ‘stop-loss’ order means that a position is automatically exited when a certain limit is reached, helping to rein in any unnecessary and unwanted losses.
It is also important to concentrate on the amount you are wagering on the forex market and to make sure, before you even make your first transaction, that you limit your chances of ‘overtrading’. This occurs when trader trade more than the value in their account. Research and diversification are key actions to take to prevent and counteract this. Most retail brokerages can provide vast amounts of trading information and data to provide hints as to how a currency might move, while diversifying between several currencies can serve to minimise potential losses.
Finally, it is well worth avoiding forex trading programmes. These may offer fantastic profits in small time scales but they are also, as a result, the most likely to crash and burn in a short period of time, taking unlucky traders with it. Instead it is much more advisable to use individual computer programmes or simply common sense.
So, is trading forex worthwhile? This really is the million dollar question. As with any trading market, there are negatives to be found and major losses that can be made on one bad move alone. However, the foreign exchange market is simultaneously one of the most rewarding that can be traded upon and a well thought out trading plan can be a sure fire way to trading success.