An Introduction to Forex, The Benefits, Risks and More

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.

Currency PairsFor 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.

BenefitsBenefits 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.

RisksRisks 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.

An Introduction to Capital & Investments

investWhen people say the word “capital” – The first thing that comes to mind is millions of dollars being invested into huge corporations. But this is simply not the case. All the word Capital means is what you are going to invest in a business or market. Generally the more capital you have when starting out the better, but you can still generate healthy return on investments and profits with a small amount. In this post I’ll outline the basics types of investments and why starting capital is so important.

risk-investment-scaleTypes of Investments

There are multiple types of investments you can utilise to make a profit. These range from very secure 2-5% options, all the way up to more risky ones that can generate you 100%+ a year. It’s just about the amount of risk you want to take. Below is an infographic I find useful to introduce to students when they are thinking about getting into trading or investing but aren’t sure what type to go with.

Types of Investing

Starting Capital Amount

As mentioned above, most people think you need hundreds of thousands of dollars to start trading, When in reality nowadays you only need a computer and the knowledge. But saying this there is a starting capital amount for trading I would recommend, and that is $10,000. Anything below $10,000 and you won’t be able to get traction with specific trades you make, and the spreads of each trade (the buy/sell levels) are going to end up killing your profit margins.

Aquiring $10,000 is easier than you think. There are multiple ways to do it. Obviously the best is to simply use savings or save up the money from today and begin once you have this in place, but I understand this might not be possible for some. Other methods can include credit cards, financing, loans and everything else. But when you are a newbie trader I wouldn’t recommend getting into debt before you have even started.

That’s the basics everyone, I hope you enjoyed the post. In the coming weeks and months I will be posting more on the topics of finances and investing so stay tuned. Contact me in the sidebar if you have any questions.