If you're thinking about becoming a trader, you might be wondering if trading Forex is right for you. If you're not sure what Forex stands for, it's foreign exchange, and it's the world's largest market with over $6 trillion per day in transactions.
A bond research firm LearnBonds reports a 40% increase in forex trading volume over the last decade in the global foreign exchange market's daily turnover of $6.6t.
Before making the decision, it's important to consider whether trading Forex is right for you by looking at some of the pros and cons of Forex trading
Forex trading has many benefits for people interested in beginning to trade. Some of these benefits include:
The flexibility to trade from anywhere, anytime: Forex is traded around-the-clock, making it possible for traders to work their other jobs while still being able to make trades at any time. With Forex, you're not limited by opening hours like traditional trading markets. This can be beneficial for those who have busy schedules or have jobs that require them to travel.
The ability to start with small amounts of capital: It doesn't take large sums of money to get started in forex trading; in fact, many online brokers offer accounts with as little as $100.
The foreign exchange market, like any other financial instrument, has risks attached to it. Aside from its volatility (the currency's value can fluctuate significantly in a short period), trading forex carries other inherent risks.
In most cases, investors only get access to their money after they have met all required conditions. Unfortunately, this can be a lengthy process requiring you to tie up your funds for days or even weeks.
The Way to Deal with the Risks
While trading foreign exchange or Forex can be extremely lucrative, there are many risks involved. For example, the volatile nature of currencies means that traders could lose their entire account balance in minutes. That's why if you're looking to trade Forex, it's imperative that you understand how to manage risk effectively. In particular, you should seek advice from experienced forex traders who have been through a market cycle before and know how to handle losses with grace.
If you're not sure whether trading forex is right for you, ask yourself: Are you looking to take advantage of short-term currency fluctuations, or are you looking to make long-term investments in various currencies?
Do you have at least $1,000 in disposable income that can be used for buying/selling currencies on a regular basis?
Are you comfortable with risk and willing to learn about foreign exchange rates before jumping into your first trade? If so, then it might be time to start thinking about how best to trade Forex.