Many questions recently have been on the mind of people on how to increase their income and create more wealth. In the quest for more ways out of the financial mess, a lot have bumped into the words, “FOREX TRADE.” Now the question is, “Is forex trading profitable?” Well, for a proper understanding of whether forex trading is a savior in a time like this, let’s make a little examination/criticism.
What is Forex?
Forex means foreign exchange, and when we say forex trading, we imply to the buying and/or selling of a currency in exchange for another. Trading forex involves making a bet on a currency’s power or strength against another currency’s weakness. In other words, trading of currencies is done in pairs. Here, we make use of two names for the two currencies; base currency (bid price) and quote currency (ask price).
Many businesspersons and travelers are involved in forex trading. Take, for instance, while traveling outside your country, you may need to exchange your money, say Euro to Pound Sterling, and by so doing, you are taking part in the worldwide foreign exchange market.
Management of Forex Trade
The management of forex trade discusses the risks involved. Now, it is essential to note that every business involves risk. There is this tendency to win or lose in a business; Forex trading is not an exception.
It is also important to note that any business that you have no fore-knowledge and understanding of before its start-up will most likely shut down. Here again, forex trading isn’t an exception. Many fail in forex trading because of not knowing the exact approach to trading. Understanding the risks involved is vital, as well as knowing how to run your trades in the best way.
A lot of money can be made within a short while when a considerable risk is taken. But then again a lot of money can be lost when huge bad risks are taken.
Mismanagement in forex trade occurs when you excessively trade and take a substantial bad risk. In general, gains and losses are inevitable.
One of the primary bases for forex trading is the availability of leverage. Leverage can also cause a massive risk but is capable of providing a sizeable ROI (Return on Investment).
Pros and Cons of Forex Trading
Let’s quickly take a look at the pros and cons of forex trading as this will help us ascertain if forex trading is profitable and capable of enriching one’s pocket.
1. Transaction charges are low
In forex trading, you will discover that there are low commissions, unlike in other financial securities or markets. Although there may be charges as a result of certain factors like the size of the trade, the time of the day, etc. but trust me, they are somewhat insignificant (an estimate of 0.07% – 0.1%). Commissions are not charged on trades; forex brokers get their compensation via the SPREAD (differentiation of bidding and asking price). Low transaction fees enable you to earn more profits in the long run.
2. 24 hours trading
There is no specific time for trading. Forex market runs on daily 24 hours, and this is to the advantage of all who may have other jobs to attend to at any time of the day/night. Whether in full time or part-time trading, you are always covered!
The forex market has the credit for being the largest global market. What this means is that it has the most significant number of participants. Buying and selling of currencies are usually instant; you hardly are trapped in any trade. As large orders are being placed, they are carried out without the price of currency exchange being significantly affected. This benefit you won’t find in the equity market.
Leverage is made available to traders in the trading market. This implies that traders can have access to and manage accounts that have a more considerable amount of money than they have in their trading accounts, thereby increasing their chances of earning more profits.
5. Absence of Middlemen:
The lack of intermediaries enables you to directly do your trading with the market, which solely fixes the price for a currency pair. The absence of intermediaries means that all the gains accruable go to you.
6. No Insider trading.
The market on forex trade has large participants and records more than 5 trillion dollars. So, it is quite difficult to have the price/market that is controlled by a single entity. This is not the same story with most bonds, stock, and even commodities.
7. Low Capital:
One can begin forex trading with just a little capital, unlike some other businesses. With the right application of knowledge and self-discipline, you can quickly grow this money in no time.
8. Flexibility arising from increasing and declining Market:
Once it’s assumed that there will be a rise in currency pair, then it’s advisable to buy it, and when it’s about to fall, you sell. Isn’t it amazing as there are no limits to trading?
9. Availability of Free tools and learning materials everywhere:
Yes, it is so real and incredible. You can find materials, tools, and demo accounts that can help grow your skills in trading and give you a better understanding of the trading market before live trading.
Here are some cons of forex trading you ought to know;
1. Transparency in the forex market is low as a result of decentralization.
2. The tendency for abuse of the system by the brokers occurs because of the absence of centralization in exchange.
3. As much as we know that leverage is a great advantage to forex trading as regards huge profit over trading capital, the reverse is the case when it turns out as loss. It’s usually a shame!
4. Internet risks are inevitable as many are determined to scam investors of their hard-earned cash.
In a nutshell Is Forex Trading Profitable
Now, back to the question, “is forex trading profitable?” being a forex trader can be a good deal of getting rich as it is profitable and rewarding. In forex trading, you need to be skeptical about every single step you take.
There are so many factors that affect forex trading; some are controllable while others are not. Make full use of the advantages embedded in the pros and try as much to reduce the risks in the existing cons. Despite the risks involved, you will still be on a better page if you put in constant learning and a healthy trading plan.
While now that you recognize that Forex has immense potential, you can operate towards becoming competent to hold an advantage of it.