If you don’t know already FOREX stands for foreign exchange and is the trading of currency pairs against one another. For example, when you go on holiday to another country that has a different currency, you will know you have to “buy” that currency and pay for it in the currency you have.
For example if you go to the UK from the USA you will have to BUY GBP and sell USD. The rate you get depends on where you go and also what the prices are on the market. The stronger the currency you are going to purchase the “worse” price you will get, and vis versa.
The currency markets in general are very volatile and react to news not only about economics and international news, but also react very strongly to weather, environmental, legal and political news. As a result there i a lot of risk to trading forex, but reducing the risk is quite simple, you simply trade a strategy. Below I’m going to go through a few of the largest risks associated with trading, as well as some of the benefits.
Benefits of Forex Trading
Despite what most people think about forex it is actually the largest financial market in the world. With 5 trillion dollars traded every 24 hours. That’s bigger than all other financial markets combined.
As a result the benefits you can get from trading foreign exchange should be pretty obvious. There is a lot of money to be made here. For example if you have the starting capital and a system or strategy that has been BACK-TESTED to work, there is no reason why you can’t make 6 figures per year in profit through the markets. The main issue people have is either; the starting capital, as most of the time the markets are in consolidation so they are not active enough to make a small amount of capital go far enough to make a large profit.
The next most common issue is they don’t have a system or strategy that works, which brings me nicely onto the risks of trading.
Risks of Trading Foreign Exchange
Although currency trading can be incredible profitable, there are risks, of which people do not generally know or take note of.
For example the 2 largest risks are leverage – Which used incorrectly can lead to you losing a lot of capital. And the next largest risk is following the “guru” or “experts” that simply don’t know what they are talking about.
The bet way to avoid these obvious and very real risks is to build your own trading strategy. If you want some more beginner friendly information check out elite forex or babypips. These are 2 sites that are very beginner friendly.