The business world throws up many opportunities for savvy investors to get the most out of their money.
For those who are switched on and able to digest the latest news and trends, forex can be a great way to squeeze a return out of any additional capital. But it is a very tricky market to master. Get it wrong, and you could rack up huge losses.
Why trade forex?
Forex is the trading of foreign exchange, or more simply, currency. Unlike stock trades, there is no closing trading period. The market is open 24 hours a day, which means there are no restrictions that impact when you can cash in and out of deals.
This is important due to the liquidity of forex markets. Values increase and decrease rapidly, often taking just milliseconds to change value. As a result, it’s important that the assets can be bought and sold quickly.
This opens a whole new level of possibilities in terms of trading. Due to the multitude of factors that influence the value of economic markets, which include national and international politics, the value of forex markets can significantly be impacted by breaking news.
If you’re in the know and keep up to date with worldwide current affairs, you can speculate the direction a particular currency is going to take in relation to another currency.
As such, this makes Forex trading extremely lucrative. However, the competitive nature and high potential for rewards of Forex have landed the market in hot water. Barclays have been hit with huge fines due to how they manipulated information within their trading platform that allowed them to illegally reject unfavourable trades.
It is because of issues like this that forex brokers go through heavy regulation. Vast amounts of money pass through forex markets every single day, so it’s important to make sure that everything is by the book, which creates the need for organisations, who ensure forex traders are established according to industry guidelines and regulations.
But forex comes with huge risks
It’s relatively easy to open a forex trading account and takes far less capital than it would to take to gain a foothold in trading stocks. It’s also possible to leverage large amounts of money, which means you’ll be responsible for coughing up the cash to cover the costs if your trades turn sour.
As with all financial trading, there is also a great deal of risk involved. Knowing when to close a deal is key. You can observe a trade gain points before suddenly diving into the negative within a few seconds. Just like that, you’ve gone from a profitable trade to your finances taking a hit.
And whilst forex is an easy market to get into, this doesn’t mean that it’s an easy market to trade in successfully. The latest big development to hit the forex market is the recent economic instability of China and shows just how dramatically these values can shift.
However, this isn’t all bad news for the savvy forex trader, as it is still possible to trade Forex against weaker currencies, so even poor market conditions can still turn a profit, if your strategy is right.
This flexibility is forex’s biggest draw. But, be warned, it’s not for the faint hearted. It can be easy to rack up debt, with this all being payable. This is why every respectable forex trading platform will have a no-risk demo area in order to allow potential traders to get to grips with the system and practise reading the market in a safe and controlled environment.
Our recommendation is to take a spin on one of the demo platforms if you are thinking about trading forex, as well as doing lots of reading and research beforehand.