Can You Make Money Through Forex Trading?
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Whether we like it or not, risk is all around us. Risk is a part of daily life really – some risks might be good to take on and others aren’t worth going after. This is especially the case when it comes to investing in the stock market.
Investing is very much a part of growing our wealth, though there are some things like penny stocks that should be avoided altogether because they’re not worth the risk. Another area in investing that many consider to be risky is forex trading. If you’re considering forex trading, hopefully this post will help you make up your mind if it’s for you.
What Exactly is Forex?
Speaking simplistically, Forex trading, or FX trading, involves trading currencies from around the world. There are many reasons why some would choose to trade currencies, which I’ll touch on later, but basically it boils down to allowing individuals to do business around the world.
For example, if you run a business in the U.S. and need to purchase a product in a European country, you’ll likely need to convert dollars into Euros to complete the purchase. This is where the foreign currency market comes into play as a means to allow individuals to exchange currencies. This sounds great in theory, but is definitely not without risk.
How Risky the Forex market?
As with anything investing related, the forex market is not without risk. In fact, most would argue that there is increased risk with something like forex and I would tend to agree with them – especially if you are uninformed to the risks. With that in mind, below are some of the risks associated with forex trading:
- It’s highly volatile. Most know that the stock market can have wild swings. That’s greatly increased when it comes to FX trading, Moral of the story, while you can make money at it it’s not for you if you don’t like roller coasters.
- Margin capability. Margin, which is trading on borrowed funds, runs rampant in the forex market. This isn’t to say that margin is bad, per se, as it can be used for good as well – just that it adds to the increased risk. This can lead to costly mistakes if you don’t know what you’re doing.
- Hazy regulation. While there is some regulation, much of it is hazy at best which can only lead to further loss.
- Finding a reputable broker. Poor regulation can make it difficult to find a good broker.
Forex Trading Pros
The list above only scratches the surface, but that’s not to say that forex trading is all bad. In fact, I spoke with investors on a regular basis who did quite well at it and made a decent income from it. Some of the benefits to forex trading are:
- Trade whenever you want. The forex market is open 24 hours per day, which means you can trade whenever you want. I suppose this could be a bad thing as well, but in most cases it should be good.
- Very low cost. A number of forex brokers, like ETX Capital, are very low cost. In fact, in most cases the broker is only being compensated on the spread.
- Virtual accounts. Some online brokers, like TradeKing, have free virtual forex accounts. In the case of TradeKing they offer a free $50,000 virtual forex account. This allows you to test out strategies before putting skin in the game.
- Highly liquid. This is in part to the 24-hour nature of forex trading. If you need to get out, the size of the market generally allows you to act if need be.
To answer the question of the post, yes you can make money in trading forex. As mentioned earlier, some do quite well at it. That being said, it is most certainly not without risk. In fact, I’d say it’s incredibly risky but if you know what you’re doing you can do well at it. As with anything investing related, please do your due diligence before deciding to pull the trigger on the forex market.
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