An Overview of Forex Trading: Everything You Need to Know

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Millions of people play the Forex market every day online. All of that cash movement results in a market that’s worth billions of dollars.

As stocks have shown traders increased volatility in 2020, we expect more traders to march towards Forex to continue maintaining momentum in their trades without having to worry about businesses folding.

The average trader may have no concept of what Forex is given its niche nature. For the uninitiated, the Forex Market or “Foreign Exchange” market is a market in which currency is traded in hopes of turning a profit.

If you’re interested in knowing more about Forex trading, if it’s worth your time to dive into, and how to be successful, keep reading. In this post, our team breaks down everything you need to know.

A Little About Forex

Forex is a market that has been growing in popularity since the 1970s. Skilled traders purchase large amounts of currency they feel is undervalued and later sell-off that currency when exchange rates trend upward.

While Forex is by no means the oldest trading market in the investment arena, it may very well be the biggest. As of 2016, a whopping 6.6 trillion dollars is traded in currency exchanges daily.

Forex trades traditionally took place through investor’s banks. Today, several online markets enable currency trades and more are cropping up every year.

Who Has Found Success in the Forex Market?

Why jump into a trading vehicle that hasn’t made others rich, right? Well, rest easy knowing that many have found success trading Forex.

Notable success stories in the Forex market include Stanely Druckenmiller, Bruce Kover, Bill Lipschutz, and others. While those names may not be ones you recognize, take heart in knowing that each of those mentioned were regular, middle-class people that took small market investments and grew them to hundreds of millions of dollars through Forex.

What Are the Pros of Forex Trading?

There are several markets you can play to make money via investments. Why choose Forex? Forex offers key advantages over other markets, a few of which include:

Liquidity

When you purchase stock or a business, you end up with a non-cash possession. Later, if you want to extract the value from that investment, you need to sell it which assumes a buyer.

Forex investments don’t assume a buyer for traders to extract value. Since the commodity they deal in is currency, their investment is already valuable and can be used to pay for life necessities.

Simpler Market

There is a lot of intricacy to investment vehicles like stock trading. Trading stocks means needing to have an in-depth perception of what’s going on in businesses, which businesses to pick out of thousands, and countless other variables.

Currency trading is a little more transparent in that there are fewer currencies to pick from and data to deduce currency’s value can come from several reputable sources that track country/currency health.

Furthermore, if you have a base understanding of the world, you likely already have an entry-level understanding of currency strength.

Lower Trading Fees

A lot of people exchange currencies through their banks, some of which don’t charge foreign exchange fees. Think about that… If you bank at a fee-free exchange, you can make currency buys/sells as much as you want without having to pay any kind of commission.

Compare that to the price of stock trades which almost always carry steep commissions and you can see why Forex trading strategies work for so many.

The Cons of Forex Trading

No means of investment is without its cons. Forex trading is no different. Here are two key drawbacks you’ll want to watch out for when trading currencies.

Standard Volatility

A quick trip to trading sites like Smarttrader.com will reveal that Forex prices can be volatile. As global instability continues to become an issue in 2020, that volatility offers increased exposure to investors.

Of course, there are virtually no sectors of the global economy that aren’t featuring higher rates of volatility right now. In certain situations, however, you may find Forex to be less stable than alternative means of trading.

Volume Trades May be Required

To make big money in Forex, you have to be prepared to spend big money. That’s because, under normal circumstances, currency exchanges won’t shift dramatically.

That means when you see a market opportunity, it may be that you’ll only score pennies on the dollar. How many dollars you’re able to feed in might make it so those pennies add up to something extraordinary.

How Can I Be Successful at Forex Trading?

The key to success in trading Forex or anything else related to investing is to get informed. The more you know about what you’re trading, the higher your odds will be of turning a profit.

As you build your knowledge of Forex, also make it a point to only trade on reputable Forex trading platforms. You always want to be able to trust the people that are handling your money.

Forex Trading Is Emerging As a Premiere Investment Vehicle

When you look at the sheer value trading in the currency market, it’s clear that Forex trading is a juggernaut. Still, Forex is in the process of making itself known to casual traders.

We hope our guide has emboldened your curiosity and helps you move confidently into the success machine that is Forex.

As always, trade responsibly and be sure to read more of our content if you’d like additional guidance on all things finance.