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ROCKFORT:Does Forex Trading Work?

來源:ROCKFORT 2019-11-29 13:56:01

Does Forex trading actually work?It is not uncommon for us to see people on the internet bragging about being

Does Forex trading actually work?

It is not uncommon for us to see people on the internet bragging about being

forex traders, or commercials that promise large profits if you start trading.

However, that always sounds too good to be true, right? If it were that easy to

get major earnings, everyone would be doing it, and everyone would be rich.

Today, we will be taking a look at what forex trading really is like, whether

or not it works, if it is worth it, and what someone who wishes to start should

know about it before entering the world of forex trading.

But, before we get there, let's quickly cover some basics, just so that

everyone can understand some of the most important terms.

What is Forex trading?

When it comes to the word 'Forex' itself, it is a term that is short for

foreign currency and exchange, or simply — foreign exchange. Exchanging money is

something that many people around the world do almost on a daily basis, often

for the purpose of travelling to another country, making online purchases, and

alike.

However, buying one currency with another is also done in order for people to

earn more money by exploiting the changes in prices. Basically, if you expect

some currency to grow in value, you can speculate on this change by investing

another currency that you already possess. When the currency you speculate about

increases by a certain amount, you can make a profit.

These changes in foreign money's value are influenced by a number of factors,

such as geopolitical events, which can have a large impact on the currency used

in certain countries. Successful forex (FX) trader needs to constantly follow

such events in order to predict how the money might react. Fresh knowledge of

events and deep understanding of how the market behaves is crucial, although

forex traders often use a variety of tools that help them predict the price

movements.

Forex trading has been around for decades, and it has grown to become one of

the largest and most liquid markets out there, with a daily trading volume of

over $5 trillion.

Another thing to understand that forex trading is a form of CFD (Contract For

Difference) trading, meaning that you are speculating on the asset's value. In

this case, the asset is another currency. In other words, you don't actually get

to own the asset in question, you simply make educated, well-informed guesses of

what it might do next, and if you are right — you earn some money.

As you can see, this is a large, complicated market that requires a lot of

knowledge, experience, research, and of course — money for making your original

investment. However, there are a few more things to know about forex trading

before you just jump into it, so let's see what there is to learn.

75% of forex traders lose money

According to some estimates, the large majority (up to 75%) of forex traders

fail and lose money while trading. This is a well-known fact that somehow still

fails to discourage new traders from entering the market. While this percentage

looks rather grim, it still implies that 25% of people tend to do rather well.

It also might not be entirely accurate, but let's assume that it is.

Why do people lose?

The answer is actually surprisingly simple — people don't know what they are

doing. We have mentioned already that forex trading is extremely complicated —

much more complicated than it seems. The act of actual trade is easy, but

knowing what kind of trade to make at any given time is what gets you.

This is where most people make mistakes, as they assume that it is easy to

invest simply by watching which currency is growing and which is dropping and

move on from there. The fact is — you need to make your move before the

currency's price starts changing; otherwise, you are already late.

Price shifts are often long-lasting, and they usually come in a brief surge,

only to experience corrections after only a few hours, sometimes even faster

than that. In other words, if you join the party late, you are far more likely

to see losses than gains.

Instead, you need to learn when is the right time to invest and to do that;

you need to educate yourself.

Education is key

What do we mean by educating yourself? It is rather easy to explain, but it

will be a lengthy and difficult process. If you do not have patience and a will

to learn and experiment a bit along the way, forex trading is probably not a

good place for you to go.

That is the first thing to keep in mind — the fact that patience is something

that you need to have in huge quantities.

Another thing that you need to understand is that you cannot beat the market.

Instead, you need to befriend it, learn to understand it, notice the way it

moves and breathes. In other words, you need to be able to see the subtle signs

of an incoming change and then make your move.

The market will reward you for understanding it, but in order to do that, you

need to abandon the 'beating the market' mindset.

Of course, educating yourself on current events around the world should go

without saying, as these are the things that impact the prices of currencies the

most. The economy of a country whose national currency you are interested in is

among the first things you must do. Follow what its companies are doing, what

the government is up to, what is the country's financial situation, are there

job openings, how many people are unemployed, and all other details you can

think of and dig up.

With these details in your possession, you will know what to expect, and each

positive event is likely to have a positive impact on the price of the currency.

Remember, it is much better to miss an opportunity than to make a wrong move. It

is better to be sorry that you don't have more money than to lose what you

already have, which is something that a lot of traders experience due to a

simple reason — greed.

Greed leads to ruin

Obviously, when you are out there, trying to make a profit, you are open to

any opportunity that comes your way. However, a lot of these opportunities only

seem like good opportunities, while in reality, they are not. Still, many people

get blinded by this desire to earn, which is what leads to making a poor

decision, and in the end — lose money.

Greed is an easy trap to fall into, especially if you are careful at first,

and you manage to make some money by making good decisions. The rising profits

tend to make people feel like they know and understand the market completely,

and that they are invincible.

This feeling is often revoked after a single bad move, and the surer in

yourself you are, the larger the amount you use for your trade. In the end, that

means that you lose more money, which is never in your best interest, except as

a harsh lesson that the market doesn't have favourites.

Think of it as a tool, and it is up to you to use it in a smart way. This

also leads us to our next point:

Don't allow your emotions to lead your decisions

Throughout this text, we have hinted at using logic and knowledge, rather

than emotions, feelings, or luck. Luck is a great thing to have, but a bad thing

to rely on, so always assume that you won't get lucky with your move. That still

leaves cold calculations that can allow you to make the right call, provided

that you have as much information as possible.

This can also be very difficult to remember at times, as experiencing a few

minor losses can put you in a state of anger, where you start making random

moves instead of thinking them through. Alternatively, you could simply feel too

scared to make a move, which could lead to missing out on good

opportunities.

Winning is also just as bad, as we discussed before, as it makes you feel

like you simply can't do a wrong thing, and that feeling usually doesn't last.

If you ever start feeling like that, it is best to quit while you are ahead.

Learn proper risk management

Risk management is another thing that every FX trader needs, as it is key not

only for winning but for bare survival when the times are tough. Even the very

best traders end up making a wrong move from time to time, and without proper

risk management, they could easily be wiped out.

Remember that your primary objective is not making a profit but protecting

what you already have. If you lose all of that, you are done, whether you are

ready to leave or not.

Proper risk management is a lifesaver in these situations, and you can

protect your capital by placing stop-loss orders, and moving them when you are

satisfied with your earnings. Get out of trades that no longer make sense.

You should keep in mind that the market isn't fueled by your optimism, but by

facts and larger sentiment. In other words, don't go against the trend, unless

if you are sure that it will shift relatively soon. Psychology is a major part

of the trading world, and the sooner you tap into it, the better.

But, even with all that, you must also always keep in mind that forex trading

simply doesn't work for everyone, and while some people can make a living out of

it, it doesn't mean that everyone can.

Don't quit your job

You have probably heard more than a few stories of people quitting their day

job in order to live off of forex trading. It is an incredibly risky move to do

so and not for first-time traders. If you want to know if you have what it takes

to do it then read “Trading Forex For a Living”

Being moderately successful with forex trading is a bad reason to quit your

job, as you have nothing to back you up if you start losing or get forced to

stop trading. Job is a certainty — or at least, it is as certain as it can be in

this day and age. Trading, on the other hand, comes with a large amount of risk,

especially if you decide to trade with leverage.

Trading with leverage is a friend, as well as an enemy

While we keep insisting that trading is risky, its risk pales in comparison

to that you face when you trade with leverage. When you trade, you are basically

betting on the future price movements, as mentioned, but you do have some space

to make smaller errors and still make a profit — or at least not lose that much,

depending on the move you make.

Trading with leverage eliminates that extra space, and you need to be

extremely precise with your prediction in order to win. Winning can be very

rewarding, but the more you stand to win, the more risk accompanies it.

In the end, if you are not prepared to take that risk, you should probably

avoid it. There is a reason why only professional traders see gains from trading

with leverage, and if you are a novice — take your time. Learn basic trading

first, and then move up slowly. That way, you won't get overwhelmed, and you

will stand a better chance of seeing gains.

Take your time, and stick to your strategy

Finally, it is time to talk about strategies. Strategies exist for a reason,

and that is the fact that they work. Of course, they don't work 100% of the

time, and sometimes, they need modifying, but that doesn't mean that each minor

shift in the market requires you to change your plans.

A lot of traders fail to understand that, and they tend to jump around a lot,

often hoping to catch a fleeting opportunity. This can only lead to further

losses. Instead, you should learn about different strategies, check out their

pros and cons, their strengths and weaknesses, and decide which one to use.

Modify it in a way that will make it useful under your specific

circumstances, and commit to it. As mentioned, there are situations where

changes are necessary and where the strategy might turn out to be a bad one, but

more often than not — strategies work, which is why they exist.

Lastly, accept that you will need time, education, investment, and patience.

No one was born with the knowledge of how to trade, and everyone had to travel

down the same road to learn it. There are no shortcuts, as only the experience

can make you better. That is why you should start with a small amount, no matter

how useless it might seem. Winning with small amounts is still winning, while

the loss won't ruin you financially.

And, of course, never, under any circumstances, risk the money that you can't

afford to lose. Always trade with the extra money, and never use what you can't

live without. Losing that is a risk that you can't afford to take, and that is

what forces you to make unreasonable decisions in order to try saving what you

can.

The best way to go about it is to use the money you don't need and to

consider it lost from the moment you start trading. That way, any surprise will

be a positive one, and you will be properly distanced from your funds, and

capable of thinking clearly.

Conclusion

Forex trading is a great way to enter the trading world and learn about how

trading works. However, in order to have any hope of making a profit, you need

to take the advice we have shared here to heart.

Forex trading is not random, and you can't approach it as such. However, it

needs a lot of effort, knowledge, and experience. Sometimes you'll win.

Sometimes you will not. You will get better in time, and someday, you may even

become a professional.

Until then, think logically about your approach, make and use proper

strategies, know your limits, expand your knowledge, and don't invest what you

can't afford to lose. Oh, and seriously — don't quit your job for forex, that is

very unlikely to end well.

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