Anyone who has looked into the forex market as a potential investment inevitably ask themselves is forex a bad investment? The answer, as is common in investing, is that the forex has the potential to be a bad investment, as well as the potential to be a great investment.
The forex market is similar to the stock market in that it requires an understanding of the market itself, world news and current events, as well as your own objectives and risk tolerance.
The forex (also referred to as the currency market, FX, or foreign exchange market) is the world’s largest, most liquid over-the-counter market for the trading of currencies. This market is a global, decentralized market, with financial centers the world over acting as trading anchors for a variety of different sellers and buyers, 24 hours a day, except on weekends.
There are several factors that contribute to the uniqueness of the forex market including its massive trading volume, which leads to high liquidity, as well as its continuous operation, geographical dispersion, the use of leverage to enhance profit margins, and a variety of economic factors that affect exchange rates.
By understanding the fundamentals of the foreign exchange market, you can better position yourself to profit from this exciting and fast-moving investment vehicle. Millions of investors trade the forex for a profit everyday, and by understanding the usual pitfalls to investing in the FX market, and taking steps to avoid them, you can be on your way to becoming a successful forex investor.
Make Money Trading Forex
Understanding the fundamentals of a country and its economy is crucial to success in the foreign exchange market. When you purchase a country’s currency, you are essentially buying a share of that nation’s “stock”.
Knowing what is driving those countries, as well as global news events helps you make educated investment decisions, and puts you in a better position to take profits. Keep in mind that in the foreign exchange market you must trade pairs, not individual currencies. Failure or success depends not on being correct about just one currency, but both currencies in the pair and how they affect each other.
The major influence in the FX market is global events and news. Political unrest, changes in central banks’ interest rates, and natural disasters can cause a stir in the FX market. Many new investors overreact to news events, and may miss out on profitable trading opportunities by waiting for the market to settle down. The prospects in the FX market are not in the market’s tranquility, but in its volatility.
Is Forex A Bad Investment? Not If You Have A Plan
It is extremely important when trading the forex market to have an investment strategy and stick with it. An investment strategy is your road map for making money. Your plan should detail how you will handle risk, which currencies you will be trading, and which approach you will be taking.
If you do not have a set strategy going into your forex investments, and perhaps more importantly, you do not stick to your trading strategy, then you may become one of the many new FX traders that lose money.
It is possible to lose money in seven out of ten trades and still make a profit, as long as your total losses are less than your total gains. Your strategy must include a plan for exiting trades to maximize profits, and minimize losses.
It takes nerves of steel to accept a loss and start fresh in the morning, but always keep in mind that the market often moves illogically, and staying with a losing position often ruins traders – sometimes permanently.