Is Forex Trading a Good Investment or a Scam?
If you are new to the world of forex trading, you may be unsure whether this is a good investment or not. Here is a short guide that will help you decide.
The word investment means different things to different people. For some, it’s putting their money in the stock market, with hopes of growing their nest egg for retirement one day.
For others, it’s putting some cash into bonds or real estate as an alternative to just saving it in a bank account or keeping it under their mattress.
No matter what your idea of an investment may be, one thing’s certain – there are plenty of opportunities out there that can help you grow your money quicker than you would without them.
There are several things to consider when deciding whether forex trading is a good investment or not, here are some of them.
Tip: Our preferred forex broker is, Deriv: Visit & Create Account
What is Online Forex Trading?
When someone says forex, they’re referring to foreign exchange, which is a currency market where pairs of currencies are traded against each other. In simple terms, you could think of forex as foreign currency trading.
By buying and selling different currencies, investors can generate returns by locking in gains (or minimizing losses) when a particular currency’s value appreciates relative to another.
A system called spot pricing determines how much one currency should be worth compared to another—in other words, how many units of one currency you need to trade for a single unit of another. If you’re planning on getting into forex trading for profit, it’s important that you have a firm grasp on spot prices and how they work.
Discover Proven Trading Strategies to help you become a consistently profitable Trader in this course
The difference between investing and trading
Investing and trading are two terms that get thrown around a lot when it comes to discussing how to manage money. The basic difference between investing and trading is that investing refers to buying an asset with long-term value in mind, while trading is more short-term in nature.
There’s also a big difference between short-term investments like stocks and long-term assets like real estate, but that’s not what we’re getting into here. Right now, we want to know whether forex (short for foreign exchange) trading is worth your time or if you should stick with your regular investment portfolio. That said…
Is forex trading a good investment?
Pros of forex trading
Since there are no underlying assets that you must purchase, it is easy to enter and exit positions, which could be attractive if you need to cash out your investment quickly.
- Compared with other markets, trading currency pairs on forex is less expensive.
- Opportunity to make money from every corner of the world by easily accessing markets through your computer or smartphone.
- Ability to trade in both directions so you can still have opportunities to trade even in a market downturn.
- You control your own working hours. The market is open 24 hours a day, 5 days a week.
- Manage and control your own risk, estimate exactly what you are willing to risk, and create your own goals and plans to achieve these goals.
- In addition, you can usually short sell a currency pair by borrowing from your broker at a low cost.
- You may also find it more accessible than other markets because there are fewer barriers for entry; all you need is an internet connection and some money to start trading.
Cons of forex trading
- There are risks with trading in foreign exchange markets, as well.
- You can lose money if you trade too aggressively or move in and out of currency positions too quickly. These losses could be greater than your initial deposit amount.
- Since all Forex trades are leveraged (you only need to put down a small portion of total position value), you may wind up with more losses than funds in your account if there is an adverse change in currency rates that last for more than one day.
- Any such loss would require additional funding, which may not be available to you if you aren’t consistently profitable. Withdrawing before maturity can also result in significant fees.
Read Also: What To Know Before You Start Forex Trading In Nigeria
HOW TO START FOREX TRADING
1. Learn about forex trading: Forex trading is not as complicated as it may sound. However, forex trading is a project of its own and specialized knowledge is required. Check out this beginner online course that teaches the ins and outs of forex trading or check out this YouTube channel.
2. Set up a brokerage account. To kick start your forex trading journey, you need to open a forex trading account with a brokerage firm. A broker will execute buy and sell orders you place as a trader. Our recommended brokers are Exness and Deriv.
As a beginner, we recommend that you first practice on a demo account and trade using virtual money before moving on to a real account on which you will be asked to make a deposit.
3. Develop a trading strategy: Forex trading is not gambling therefore, for you to succeed you need a trading strategy that acts as your trading road map. The reality of your situation and finances are some of the factors that should influence your trading strategy.
Discover Proven Trading Strategies to help you become a consistently profitable Trader in this course
Your forex trading strategy should put into consideration the amount of cash that you are willing to risk, when do you open positions, when do you exit positions as well as your risk to reward ratio. At times it can include the number of positions you enter per day, week, or even per month.
In this online course, you will learn everything you need to know about developing a trading strategy.
4. Cultivate emotional equilibrium: As a beginner troubled by unanswered questions as well as emotional roller coasters. It is important to not get carried away by your trading positions and cultivate emotional equilibrium across profits and losses. Only open and close positions, when necessary, Be Disciplined.
Before you start Forex Trading: Read Books
Books are much cheaper than courses and provide a lot of information. Below is a list of our favorite books about investing and trading. We believe that every trader should read them in order to succeed in the financial markets. Make sure you read as many books as you can in order to fill your mind with useful information. You can click the title in order to be able to access the books.
The Intelligent Investor Rev Ed.: The Definitive Book on Value Investing
No Nonsense Forex Trading Psychology
Advice for getting started in forex trading
Know your limits. It’s great to be ambitious, but it’s also important to know what you can afford to lose and be realistic about how much money you’re able to risk. When first starting out, plan for losing trades; it happens to even the best traders. The key is not to let losses get out of hand, so know your risk tolerance before trading and keep it in mind as you start off.
Discover Proven Trading Strategies to help you become a consistently profitable Trader in this course
Conclusion
To help you decide if forex trading is for you, here are a few tips to get started and some reasons to consider. First things first: determine what kind of trader you’ll be. If you’re hoping to invest and take advantage of large price swings—and hold on until they swing back again—you might want to start by opening an account with an online broker like Deriv or Exness. If you’re thinking of becoming an active trader, one who buys and sells currency in quick succession over days or weeks, try using XM or Deriv will also do. Is forex trading a good investment?
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