The forex market is one of the most liquid markets in the world and offers traders the ability to trade global currency pairs.
The market is accessible to almost anyone and has become a popular potential career choice. Additionally, the idea of making money from anywhere has made forex trading the perfect option for many.
From the outside, forex trading is often seen as a simple process of making money, but in reality, it is an extremely difficult business that requires a lot of time and effort to perfect. As a result, while forex trading may be a successful career path for some, it is not for the majority.
Forex Trading Career: The Benefits
Being a forex trader, despite its challenges, can provide benefits to someone pursuing a career. It is, after all, a highly sought-after profession, despite the potential pitfalls that aspiring traders face.
1. Low capital requirement
Due to its tight spreads and low fees, all you need to start your forex trading career is minimal capital.
Large amounts of capital are likely required to invest in markets such as stocks, futures, or options, but this need is less of a concern in forex. Margin and leverage opportunities offer potentially greater gains.
Leverage carries higher risks and greater potential losses, so it is an option you should consider carefully before using it. Also, although you can start with a small capital, it does not mean that you will automatically earn money. It is important to consider the risks.
One of the advantages of forex trading, and perhaps also a disadvantage, is the possibility of trading at any time. Whether you are busy during the day or have free time, the forex markets operate all day during the work week, which is convenient.
Therefore, it suits all trading styles and is beneficial for short-term traders who can transact within hours. On the other hand, you can also take longer term positions.
You can count on hundreds of indicators, and everything is designed to give you the best possible trading experience. Convenience is a big draw, especially for less experienced traders.
3. Low costs
You can choose from many brokers. Therefore, to attract new clients, brokers tend to keep fees and costs to a minimum. As a result, brokers tend to make profits from their spreads, which means no brokerage fees are applied.
Additionally, minimal equipment or investment is required, making it a viable career option. To start your trading career, all you need is a laptop, some capital, and a broker.
4. High liquidity
Compared to other financial markets such as stocks or bonds, the foreign exchange market has the highest liquidity. Trillions of dollars flow in and out of the market daily, and trades can be executed quickly without high costs.
Liquidity is the backbone of the investment market. Liquidity provides traders with low spreads and the ability to open and close a trade at any time.
Liquidity is essential to any market, and traders need not worry about volatile openings or closings as the forex market is constantly changing.
5. Many Pairs
You can choose from many currency pairs, including eight major currencies. Therefore, if you see large losses on one pair, you have the option of switching to multiple currency pairs.
Your criteria for choosing a pair may vary depending on its volatility, economic actions or technical developments.
Many traders develop an advantage in one currency pair that may not work with another. Therefore, switching between currencies is common practice to find your best match.
Forex Trading Career: The Downsides
A forex career is no small feat, and despite its positive aspects, every trader is likely to face challenges along the way. It is therefore crucial to be aware of the disadvantages.
1. Complex price changes
Forex prices are influenced by many factors and it can be difficult to follow them. Currency stocks and the global economy can have a significant impact on currency exchange rates, which can be difficult to conclude. Making the wrong choice can result in a loss.
To combat these scenarios, a plan must be in place. Many people make money from forex trading despite complex prices. The key is to find an edge or plan, either through technical or macro analysis, and stick with it.
2. High risk
Forex traders can make significant profits through leverage. But leverage means you also risk greater losses. It is therefore essential to assess the risks beforehand.
Risk should always be considered if you decide to start your trading career. A good rule is to only trade with capital that you are willing to lose. As a result, your emotions will not play as much of a role in your trades and you will be able to trade with more confidence.
3. No help
Another downside is the minimal support given to forex traders. In the stock market, a person can seek help from portfolio managers or advisors. However, forex traders tend to be on their own. Heavy losses and lack of support can lead beginners to quit.
There is no quick fix to this problem. Discipline and hard work are needed to succeed in this field. However, to avoid further losses, you must remain committed to making profits and use all possible learning avenues.
The high volatility in the forex market can be seen as an advantage and a disadvantage for traders. Volatility keeps costs low, but without control over macroeconomic developments, it is difficult to predict where the price will move.
Therefore, if you make the wrong judgment, there is little you can do to change the direction of the market, which could cause serious damage to your funds.
The best approach to combat these difficulties is to maintain strict stop losses for every trade you place. Trade using a well-designed plan.
The biggest forex traders in the world are large institutions with a level of funding and a team of employees to help them execute the best trades possible. You will be competing with the best.
Right from the start, you’ll be up against professionals and some of the smartest minds in business and finance. The market is not kind to beginners.
Mistakes to avoid as a Forex trader
The market is both high risk and high reward. Therefore, mistakes are inevitable and it is something that all traders have to deal with.
Trading without a net: You can’t watch the markets all day and all night. Therefore, trading without a stop loss is almost suicide and a surefire way to lose a significant portion of your funds.
You must plan each exchange in advance. A stop loss will give you an exit strategy at a strict price, and it is a good way to limit your emotions.
Over-exchange: Losses are part of the reality of trading, but the ultimate goal is to limit them as much as possible. A loss can be painful, and this is where your emotions can play an important role in your trading. Placing follow trades to recoup your losses can lead to a bigger drop.
Overtrading is a very common mistake for traders, and the solution depends on how well you control your emotions. But, if you stick to your plan, your benefit should outweigh any potential long-term loss.
Starting trade: Investing your hard-earned money in a market you have just learned is a dangerous game. A new trading strategy offers no reward guarantee and has no history to back it up.
A friendly tip would be to start trading on a practice account to use virtual funds. This practice gives you the opportunity to test trading plans and learn from mistakes you may encounter without risking your capital.
However, keep in mind that trading with real money and fake money can have a totally different impact on your emotions, and the way you handle trades can be completely different with your funds at stake.
Overreacting: Taking a loss will be a painful experience for any individual. The emotions of regret and acceptance of having been wrong are not always easy. But trades come and go daily, and accepting losses as part of your plan will be crucial in the long run.
Insufficient capital: Although you can open an account with a small amount of capital, the capital needed to trade safely (with proper risk management) and pursue a full-time career as a trader is more than most can afford. Even if you have this capital, there is no guarantee that you will be a successful trader.
A final reminder, don’t let the highs get too high and the lows too low. Whether on a winning or losing race, don’t let your emotions take over and overreact.
Compare Forex Brokers
A career in forex trading cannot begin without a broker. The broker is the intermediary between you and the exchange and will carry out the instructions that you have given to him.
The broker executes your trade but charges fees through its spreads. Benzinga lists the best forex brokers.
CedarFX is not regulated by any major financial agency. The brokerage is owned by Cedar LLC and is based in St. Vincent and the Grenadines.
Frequently Asked Questions
Can you make a living trading forex?
It is possible to make a living from forex trading. Markets have allowed millions of people to trade and earn money. However, a variety of factors will determine whether you are one of the few who can make a living from the forex markets. Forex trading can be a tough road leading to big losses. It’s an achievable goal, but it takes a lot of discipline and hard work. Even then, you have no guarantee of success.
Is it worth trading forex?
Forex trading is worth considering for anyone looking to invest or set aside time to perfect their craft. However, it is not worth it as a get-rich-quick scheme. Forex is the most liquid market in the world, and this feature presents opportunities for some of the best players to earn immense profits. In addition, it is easily accessible and accessible to everyone, experienced or not. Forex trading is only worth it if you go into it with the right mindset. For many, it can take years to turn a profit, and if you can’t see yourself persevering, forex may not be the best approach for you.