Forex, also called foreign exchange, is a global, decentralized market for trading currencies. In recent years, the forex market has exploded because of changes in technology. These changes in technology allowed individual traders to take part in the FOREX market is without question the largest financial market in the world.
The FOREX market trades over $2 trillion dollars per day is about 10-15 times the daily trading volume of the world’s stock markets combined. But while the financial markets have become accessible to more people, it has become challenging for traders to choose the most suitable one. However, a trader should consider the potential advantages and drawbacks of a financial market before investing.
To help you fully understand if you want to do this, I have listed below four reasons to invest in forex trading and three reasons you shouldn’t.
4 Reasons to Trade Forex
1. Time Flexibility
Forex trading business offers convenience in terms of time. Time flexibility is one of the top reasons you can start forex trading business. The forex market remains active 24/7 as it involves global electronic currency exchange. It operates 24 hours each day as currencies of different countries from around the world float in this market. This enables you to enter or exit a trade whenever you want. Therefore, you can start trading whenever you have time. Forex is one of the few businesses that allow you to trade anytime.
2. You can deal with a high-risk environment
As the Forex market can be a volatile market, you must tolerate a certain level of risk. To better protect your trading capital, it’s important to have a sound risk and money management system with rules to follow. For instance, always determine your stop-loss and take-profit levels before entering the market. In this way, you’ll already know how much you’re willing to lose and how much you can expect to earn from your position. We call this your “risk/reward” ratio.
Another example would be to adapt the size of your positions depending on the current trading conditions and the evolution of your trading capital. All these rules should be part of your trading plan and to be profitable, always stick to your plan!
3. Develop a trading plan and follow your investment method
Commitment, patience, and dedication are the most important ingredients in trading. Having a trading plan to follow when trading is vital if you want to be successful, but you need to be committed to following it and have the patient to open or close your positions according to your set-ups.
I advise that you develop your investment strategy first, or create a trading system, before investing real money on the FX market–if not, you will not be sure of what you’re doing and that is making money.
A trading plan is a description of your investment method:
Trading style: scalping, day trading, position trading
Currency pairs: majors, minors, exotics
Timeframes: 5 min chart, 15 min chart, 4h chart
Size of your positions
Set-ups to follow to enter/exit the market
Risk and money management rules: risk/reward ratio, stop-loss, and take-profit orders…
4. Take advantage of a growing market with high liquidity, volatility, and leverage
The Forex market has been a fast-growing market over the last 20 years. According to the 2016 Triennial Central Bank Survey of FX and over-the-counter (OTC) Derivatives Markets from the BIS, trading in foreign exchange markets averaged $5.1 trillion per day in April 2016.
This high trading volume increases the liquidity of the market, so it’s easy and fast for an investor to enter a trade and also reduces the risk of potential price manipulation from others. The profitability rate is high if you win your trades. Most people who started forex trading as a part-time business ended up quitting their jobs to focus on forex trading because they have earned good profits than they expected. The key to earning more profit is to invest more. The more you invest, the more profit you are likely to earn. You need to learn forex business and make smart decisions to win trades successfully.
3 Reasons You Shouldn’t Invest in FX
1. You have no extra money
Because the market can be volatile, there is always the risk of losing money when trading a currency pair. Losing trades over a lengthy period of time means that your account balance can drop to zero.
Besides the inherent risk linked to trading, with Forex trading you need to add margin trading and leverage, so you can invest sizeable amounts with little initial capital. So, this high risk means that you need to be sure you do not use money that you need to live on–always trade with money you can afford to lose!
2. You don’t know what you’re doing
Before even considering trading, you need to know the basics of the markets, what influences them, and how trading works. Another important aspect is that you need to have a trading strategy that suits your trading style, with strict money management and risk management rules that govern how you allocate your funds to trades.
If you have no trading experience, and you do not know how markets work and relate to each other, Forex trading might not be the right investment option for you–at least not yet.
3. You are risk-averse
Fast-changing market conditions, high volatility, and leverage can make Forex trading a high-risk activity.
You can make huge returns in the FX market, but these kinds of returns do not come without risks, especially when using leverage. So, if you can’t handle losing every dollar in your account, Forex trading will not fit your targeted risk/reward.
Deciding whether to trade in the Forex market is up to you, but remember that even if you’re one of the smallest actors on the Forex market, you can still profit from it. And one way to be highly successful at it to seek training and mentorship from the right person(s).
I have been training a group of people in my Forex Money Machine masterclass over the last couple of months, and I am glad to see how they are profiting every day.
Would you like to be a part of these FX money makers? You can click here to book a free 30 mins call with me discuss more in detail.