Why Trade Forex?

Trading means buying and selling a financial product with the intention of making a profit. There are numerous financial products that can be traded, starting with the classical stock market, indexes, options, commodities, contracts for difference (CFDs), etc., but Forex is the most popular. Financial independence is the main reason why traders choose this path, but mastering the art of speculation is not an easy task. Speculation is more about psychology than knowledge, and combining them both is an art.

Forex trading appeals to human nature because it offers the possibility of building great fortunes in a relatively short time. Losses can be incurred as well, though, and the clear majority of Forex traders lose their first deposit. This is one of the reasons (but not the only one) why all Forex brokers must warn their clients that losses can be suffered. Furthermore, because Forex is a leveraged business, these losses can exceed the deposited amount.

Ease of Access

Ease of access is one reason. Anyone with a stable Internet connection can open a trading account with a Forex broker and start trading. To open a trading account there is a simple procedure that must be followed, and sometimes it takes less than a business day. An average period for document verification is around 2 business days, depending on the broker. The overall process is easy to follow and straightforward, and in just a couple of days a trader can have access to the Forex market.

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Trading is always heavily promoted, and Forex trading even more so. Again, the psychological component of the business, and money in general, both play an important role. It is known that people are drawn more by the prospect of winning 100 dollars than losing it, and this tells much about why more and more people are being dragged into Forex trading.

The overall Forex business, just like the betting industry, is heavily promoted on classical channels like television and business channels, but mostly in the online environment. From emails in your inbox to banners based on your IP search, trading companies (Forex brokers) know how to reach the right persons interested in trading currencies.

Advantages and Disadvantages of Forex Trading

Advantages and Disadvantages of Forex TradingBy far the main advantage is the fact that it offers the possibility of realising profits in very short periods of time. This is what attracts people to Forex trading. Forex trading is not easy, though. Fundamental and technical analysis must both be mastered, as speculation is not for everyone.

However, the prospect of making a quick buck is a strong incentive. Everyone dreams of being their own boss and making their own schedule, and Forex trading is a suitable vehicle for reaching that dream. The biggest disadvantage is the fact that the clear majority of Forex traders, if not all of them, start this journey not knowing what trading is about. This is the reason why most of the initial deposits are lost.

Forex trading is advertised as being an easy business where all you have to do is to sell or buy some currency pairs. It sounds simple, but when you have to do that day in, day out for a profit, things are not that simple anymore.

Another drawback comes from the fact that trading nowadays is mostly done by robots or trading algorithms, and humans follow robots when trading the currency market. This leads to the biggest part of the main move being missed, because a trader is scared to trade an economic release, and hesitates too long.

However, despite all its negative traits, the simple fact that it can be a solution for quick profits to be made is enough of an incentive for many people; and, in some cases, this turns out to be true.

Traders’ Expectations vs the Realistic Approach

Traders approach the Forex market with two things in mind: to make tons of money in as little time as possible, and to do that with as little effort as possible. That’s everyone’s dream! For those who start Forex trading with such a goal, though, success in trading this market will never come. The Forex market is well known for its quick swings and strong moves when no one is expecting them.

To survive all these violent moves, there are two things to consider: patience and discipline. In view of this, a realistic approach will be one that allows the account to grow in time, with good and bad periods. It is only normal to have bad periods when trading, and if traders cannot accept the fact that losses are part of the trading game, they will never win.

What is important is for the trading account to grow, and for this to happen, losses must be taken. I know that it sounds like advice that you already heard, but it is inescapably true. The problem comes from the fact that it is easier said than done. How do you cut your losses, and how do you let the winners run?

What if, after cutting a loss, the market turns and reaches the take profit? Or, after booking a trade with a nice profit, the market continues in the same direction? All traders do is to calculate the opportunity cost that was missed by closing the trades too soon. The result will be a new trade that is opened, and that one is going to be a loser.

Fear and greed are two components that govern life, and trading in general, and the Forex market in particular, are dominated by these sentiments. Traders must accept that is not possible to trade all the moves to their absolute highest or lowest values. A sound realistic approach to Forex trading is a gradual increase in the trading account. This should be the result of proper money management techniques implemented based on a strategy that suits the trading style used.

Traders who have a longer horizon for their trades, and take their trades from the longer timeframes, use pending orders more often than traders who scalp their way to profit. All of this must be incorporated into a trading plan. It is normal for the account to consolidate in a few months, or for losses to occur, but if the overall trend is a positive one, then the trading purpose is achieved: that is, to trade profitably. Each individual trader has their own trading strategy, and bases it, ideally, on both fundamental and technical analysis. Any strategy should be sure to take losses into consideration in order for the bigger goal to be realised.

All in all, there are numerous reasons why people chose to trade the Forex market, but mostly it is because of the huge transformational potential it has. This comes at a cost, though, of many hours spent in front of the screens, having to cope with periods of uncertainty, and periods when the market moves without logic, etc. It is extremely interesting and mind-challenging to trade the Forex market, though; and if there’s a chance for a profit to be realised, why not give it a chance?

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