Is Forex Trading Right For You?

Investment is a big broad world with lots of methods for different kinds of people. You probably need to invest if you want to have a comfortable financial life in the future, especially during retirement. But contrary to what you might hear from investment advisers on TV and radio, there are more than one or two “right” ways to invest. In the real world, there are hundreds of ways to invest, each appealing to a different kind of person. One of those many methods is Forex trading.

What is Forex Trading?

Before we break into what Forex is and whether or not it’s right for you, let’s define our terms.

Is Forex Trading Right For You?
Is Forex Trading Right For You?
“Forex” has a couple of meanings that get used online, which can be confusing. It can be a shorthand term for “foreign exchange”, and relate to the prices of currencies exchanged in their own special markets.

The Forex we’re talking about doesn’t actually involve buying currency. It’s about making speculative investments on the future values of currency pairs. Investors who correctly guess how these prices are going to change (higher or lower than a certain threshold, relative to one another) receive dividends based on how much money they invested in the first place.

Of course, users lose money if they don’t pick the right value change direction, but we’ll get to that later on.

So why do people like Forex investing?

Well, there are plenty of reasons. We’ll start with time. It doesn’t take long to take a Forex trade from start to finish. On trusted Forex broker platforms you’ll be able to choose investment time frames that take just minutes or stretch out over days. A lot of people don’t like typical retirement-style investments, which take decades to add up to anything significant. Forex trades can have enormous dividends, all in amazingly short periods of time.

Another reason people like Forex is that it rewards skill and insight. Most great users know a lot about two currencies in particular, like the US dollar and the British Pound. These currencies fluctuate in price constantly, with little jumps and dives happening every second of every day. The Forex trader is most concerned in big fluctuations, which are due to lots of different global events.

How to Know if Forex Trading Will Work for You

If you know a lot about why currencies gain or lose value, you’ll be great at Forex. If you don’t know, you can learn! This information is readily available on the internet. Forex rewards people willing to do their homework. If you’re that kind of person, you’ll probably do really well.

Forex is also popular because it can pay off huge. Most investment forms will make their investors happy if they bring in 9% a year. Forex can give you 100% today – if you’re good enough. Unlike ownership investments, like stocks, users don’t own the currencies they’re trading in. Rather, they’re making bets on how currency prices will change. People who know what they’re doing can achieve massive yields on the money they put down, giving Forex an enormous potential for investor profit.

Having Safeguards in Place

Forex trading also requires some safety nets on your part. First, only a small percentage of your total investment portfolio and savings should ever be dedicated to forex trading. It’s important to understand that forex trading is less about investing, and more about speculating. That means that you need to consider the possibility of losing your entire investment.

Your portfolio should be broadly diversified, to include assets not related to forex. This can include stocks, mutual funds, bonds, and completely safe investments, such as certificates of deposit, money market funds, and U.S. Treasury securities. This will give you the wherewithal to survive a significant loss in your forex position.

And it should go without saying that you should educate yourself thoroughly before engaging in forex trading. Some large brokerage platforms offer a wealth of educational materials, trading tools, and even “virtual accounts” to help you gain this knowledge and experience. Be sure you are comfortable with the entire process before you begin actual trading.

Having all of that in place, forex trading could be a good additional income source in your portfolio.

( Photo by renaissancechambara )

2 Responses to Is Forex Trading Right For You?

  1. Hi Mary – I personally don’t trade Forex, but I’d imagine it’s not a place for the faint of heart right now. For the next few weeks we can assume it will be a speculators paradise, with great potential for both gain and loss. Every pronouncement by a government leader, central bank head or industry icon is likely to swing the market. It may not be at all predictable.

    Are there any Forex traders out there who’d care to weigh in with an opinion???

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