With today’s ever-changing economy, many people are on the lookout for simple, effective methods of supplementing (and even replacing) their current income. The first places they may search for moneymaking opportunities are through a variety of work-at-home websites, as well as through traditional employment agencies. However, most find these paths lead only to dead ends, additional frustration, and wasted time.
If you can’t work for someone else, though, you might as well start your own business, right? Not quite. While forming a business from the ground up may be a viable option for some, the vast majority of us do not have access to an adequate amount of investment capital, and aren’t able to wait months (or even years) until profits begin rolling in. And the stock market? Millions of hardworking people lost nearly all of their life savings during the recent economic downturn, and are leery about throwing any more of their hard-earned money down the drain.
The good news is that trading on the Forex market has proven to be a solid method of achieving financial freedom, but it doesn’t come without its own set of risks.
What Is Forex Trading?
The Foreign Exchange market, or Forex for short, is where the world’s different currencies are traded. Each nation’s currency has a constantly fluctuating exchange rate, and just like any other trading market, the goal is to buy low and sell high.
How Does Forex Trading Work?
Individuals will need to utilize the services of a broker (also known as a market maker) in order to trade on the Forex market. While there are many Forex trading strategies, the most basic includes purchasing a currency at one exchange rate, and selling at a higher one at a later date.
For example: Let’s say you purchased 1,000 Euros at the beginning of the month for $1,200 USD, which you decided to hold on to for 2 days. When you sold your investment at the end of the second day, your 1,000 Euros was then worth $1,300 USD, which translated directly into a $100 gain.
The Upside of Forex Trading
Trend-based results. Because competition within the Forex actually helps individuals make money through volatility and price fluctuation, individual traders can focus on identifying and following emerging trends, instead on beating their competition. For example: If you sell tangible items (e.g. clothing, furniture, cars, etc.), the price of these items are directly related to those of your competition. If they decrease their prices, you must also decrease yours in order to remain competitive. As a result, you would be making less profit (or none at all), and may even have to close your doors if prices drop too low. With Forex trading, however, you can make money whether currency increases or decreases in value.
Trade at all hours of the day. Because the Forex constitutes a global market, it is always active, regardless of the time of day.
Remain liquid. Since Forex traders are dealing directly with currency, holdings can be quickly converted into cash, should the need arise.
Low transaction costs. Unlike traditional business models, including the stock market, newcomers to the Forex can enter with very little initial capital, as there is no official minimum (Note: We will cover this in greater detail later in the series). However, since traders will need to use the services of a broker or market maker, each firm can set their own minimums, so it’s important to do your research beforehand.
The Downside of Forex Trading
Market volatility. Just like with any other market, individual currencies can experience wild swings in value. While this can lead to large gains in a relatively short period of time, it can also lead to large losses. Research and practice are the keys to success.
Seeing red. Because nearly all Forex brokers include their fee (also known as a “spread”) in each trade, this means individual traders will immediately start out at a loss. Because of this, it’s important to 1) find a broker with low and/or fixed fees, and 2) thoroughly research each trade for potential upside.
Higher prices. Individual Forex traders receive retail pricing, which is often higher than the wholesale pricing that hedge funds and banks enjoy.
While the Forex market can be a great solution to your income woes, it’s definitely not for everyone. Successful Forex traders are motivated to constantly learn new techniques, to apply this knowledge in the real world, and to maintain a positive approach to their activities. If you tend to be impatient, greedy, or are afraid to make split-second decisions, this may not be the right path for you.
Now is the time to enter the world of Forex, as a vast universe of opportunity (and money) awaits those who are prepared to make the leap.
Other articles in this series: