Can you really make money trading Forex?
The above question is one of the frequent question people use to ask on question and answer sites, forums and business relate websites. A lot of prospective traders have become skeptic about the possibility of making money trading Forex. If you search through the internet, you will see hundreds of negative comments about Forex. These misinformation have scared many prospective traders from trading Forex and deprive them the opportunity of making money.
Notwithstanding the negative report, Forex is one of the most lucrative online businesses. Though like any other business, Forex trading involves risks, uncertainty, profits and loss. Forex trading may not be easy way to financial freedom like many adverts makes us to believe. To succeed in Forex trading, a trader need preparation, high-level of discipline and sound money management skills.
Benefits of Fx over other online money making methods.
1. Forex is the largest financial market on globe.
Forex trading volume has reached average of five trillion dollars daily. No other financial market in globe can boast of such size and liquidity. Forex market continues to attract more traders and investors. Due to the size of market, there is always availability of buyer and seller. Therefore, a trader doesn’t have to wait for hours or weeks to make a transaction like in the off-line currency market.
2.Forex is the first true global market.
A trader can trade forex 24 hours a day and 6 days a week. Forex market creates equal opportunity for anyone to profit from the market regardless of time. Therefore forex is an excellent alternative for people that are on tight schedule. A trader can participate in the market at his convenience.
3. High leverage
Forex brokers use to provide unparalleled high leverage for traders in Forex . Sometimes, this leverage can be high up to 500 times the Traders investment. This provides great opportunity for traders to make high profits with little investment without losing huge capital.
Note- leverage works in vice versa. Leverage can amplify loss and wipe entire account in minutes.
4. Low account requirement
Forex is an open market where everybody can participate regardless of financial status. Prospective traders can open account with as little as $100. Some brokers even accept as low as $50 to open live account on their platform. This is one advantage Forex have over other financial markets like futures.
5. Low transaction cost
Forextransaction is unlike other financial market where a trader pays commission per trade. In Forex, brokers only take a little fee called spread. In bid to attract new traders, brokers use to reduce the spread as low as 0.01% of a trading account.
6. Free simulate account and trading tools.
All trading platforms come with free demo account and trading tools. Some brokers also provide free breaking news and live prices. Traders can use demo account to place trades without real fund. Secondly, some brokers even provide free seminars and webinar to help traders to hone their trading skills.
7. Profit in whatever direction.
Forex is a two dimensional trade, where you can make money regardless of movement of trade. In trading, you can be a seller or a buyer interchangeably. This is possible because Forex involves buying of one currency and selling of another currency simultaneously. In Forex, currency is traded in pairs. Example, USD/JPY, EUR/USD, etc. This opportunity can help a smart trader to profit from both sides, no matter the direction the trade goes.
Why Traders lose money in Forex?
There has been a lot of misconception about Forex and currency trading. This misunderstanding arise from the fact that majority of people that engage in forex fail miserably. Frankly speaking, 60% of Forex traders lose money consistently. Traders lose money because of their mistakes and not actually from the system. Here, I will examine some factors that make traders lose money in trading;
1.
Trading without learning
A
lot of traders don’t have the patient to learn and understand how forex works
before they start trading. That Forex is easy doesn’t mean you can jump
into the market without due diligence. In fact about 52% of failures on Forex don’t have
fundamental knowledge about Forex . It is advisable to learn about Forex from
seasoned Professionals. If possible, one-on-one tutorial with a professional
trader can give a good head start on Forex trading. Secondly, some brokers use
to hold free lectures on how to trade Forex . You can equally see free videos
tutorials on their sites. Another good alternative is YouTube. There are
hundreds of free tutorial videos on YouTube.Among all these learning channels, none can be compared to personal experience that comes from live trading. Remember, practice makes perfect.
2. Lack of trading plan
Developing a trading plan is one of the necessary requirements in making profit in Forex. Many traders simply want to make millions of dollars without having an iota of plan how to do it. In Fx, trading without plan can only be compared to gambling. Some traders use to jump from post to post searching for trading plan that will guarantee profits all the Time. Honestly, there is nothing like grail trading plan. It is worth to note that no trading plan is perfect and can fail at times. It is how a trading plan performs over-time that is important.
Moreover, is more preferable to develop a plan from personal experience and observation of the market than copying other traders. If you are going to take or copy other traders’ strategies better back test results in demo account before going live.
Note- Prospective traders should be careful of buying a trading system. Firstly, many traders have been scammed through this way. Secondly, none of the tools can guarantee 100% positive result. In fact, it is risky to use these tools without monitoring them.
3. Order entry Challenges.
A lot of traders find it difficult to execute precise order entries, sometimes jeopardizing the entire trading account. Factors like emotions, lack of concentration, poor connectivity, stress, clustered charts, slippage etc can affect a trader entry execution. It is advisable that a new trader should practice trading with demo account before trading with real fund. Secondly, when going live, a trader supposes to start small. By this step, a trader should evaluate his/her emotions and experience.
It is also important that a trader should only tools he can manage effectively. There is no benefit of clustering the workplace with tools that may hinder interpretation and execution. Forex is a business of speed and precision. In Forex, opportunity can open and close in second. Therefore, there is need for high speed internet connectivity. If your connectivity is slow better increase the bandwidth or change the provider.
4. Lack of proper money management techniques
Ability to manage and protect account from excessive loss is very important skill in Forex trading. In fact, professional traders do loss but how they mitigate against excessive loss is what makes the difference. It is important that a trader learn how to use protective stop loss to mitigate against excessive loss.
Another good money management technique is trailing stops. It helps a Trader to minimize loss and protect profits.
5. Lack of experience and expertise.
It is advisable that a prospective trader should start first with practice or demo account. Most traders simply jump straight and start trading without learning the steps with demo account. Practice account use to help trader to;
A. Develop a trading plan and entry techniques.
B. Condition the mind to adapt to the trading environment
C. Build confidence
6. Choosing wrong broker
The Forex industry is filled with brokers of questionable integrity. It is important that a trader should do business with firm that is duly registered as a futures commission merchant in the country of its operation. Every country has regulatory body where legitimate Forex brokers obtain their license of operation. In United States, Commodity Futures trading commission (CFTC) is the regulatory body that oversees Forex and related industries. There is still need that a prospective trader should check out what other traders are saying about Forex brokers. Some of the websites and forums where top notched traders hang out include;
It is also necessary that a prospective trader should also pay attention to brokers account offerings such as commissions, spreads, initial deposits, leverage amounts, account funding and withdrawal policies etc
Greed
Greed is one of the major reasons most traders lose money in Forex. If you are interested in Forex, try as much as possible to condition your greed. Some traders want to make millions of dollars with small investment by using unreasonable leverage. On the other hand without putting into consideration that leverage can amplify loss. That Forex offer access to high leverage does not mean you can millions over night.
Due to greed, some traders find it difficult to accept their losses and move on. In attempt to recover what they have lost, they make more devastating mistakes. Loss come with emotional trauma which makes a trader psychologically unfit to concentrate on trading. It is advisable that a trader should know when to stop and have rest.
8. Don’t see Forex trading as a business.
It is very crucial that a trader treats Forex as a business. Unfortunately, many traders see Forex as a game of luck.
9. Using too many technical analysis tools
It is important that a Trader use relatively few tools, he can manage effectively. When the workplace is clustered by many trading tools, it may bring confusion and make chart very difficult to read. Moreover, technical analysis tools ought to be few for them to be effective.
Summary
Forex can be rewarding, but need preparation, learning and patience. Trading Fx without preparation can only be compared to gambling. Due to dynamic nature of Forex, it is not suitable for people who want to be rich overnight. Forex need planning, staying focused and constant learning. When approached with sound money management techniques, Forex can be profitable in the long run.