Is Forex Trading Legit?
The foreign exchange market, or Forex, is a global international currency market. It is the youngest of the existing world markets, and the largest in the world in terms of the trading volume.
Daily turnover is around $5 trillion, and the market is stable and reliable like no other! Many people see forex as the nervous system of the global economy, as it always reflects current events and is not subject to failures or unexpected events.
The term Forex is used to refer to the mutual exchange of freely convertible currencies, not the entire set of currency exchange transactions.
Tradable currencies, as opposed to stocks, bonds, and bills, do not have independent returns, which could be associated with exchange rate fluctuations in the foreign exchange market. It is not possible to calculate the future price of a currency based on regular profits or dividends, as is done in the stock market.
The foreign exchange market operates 24 hours a day, 5 days a week, from Monday to Friday, and it can be traded at any time considered convenient for the investor. To work, all you really need is a computer device with the right software and an Internet connection. Modern technologies have allowed anyone, regardless of their profession, to play a part in the market.
You can make a profit in this market in two cases: you buy the currency at a cheaper price, and sell it at a more expensive one, or sell the currency at a more expensive price and then buy it cheaper.
The change in supply and demand within the market causes a shift in the rates of the most liquid currencies in one direction or another. Being able to predict and foresee these shifts is where the art is at.
Almost all intermediaries in the foreign exchange market offer clients direct conversion services and speculative trading with leverage (marginal speculative currency trading).
If we compare trading on forex and the stock market, then the stock market assumes the purchase of shares, or a stock portfolio, for a long time in order to receive dividends or to wait for an increase in the value of the shares. On the other hand, investing with forex means allocating funds for operational trading by transferring funds to a trusted broker.
The principle of operation for forex is relatively simple. An investor must first decide with which currencies he will conduct operations, after which, through an intermediary company (a bank, broker, or a dealing center), the investor can buy a certain amount of one currency for another.
Forex trading is carried out in currency pairs. For example, with EUR/USD, JPY/USD, GBP/USD, and others. If an investor is tracking the EUR/USD pair, for example, then the euro is first bought for U.S. dollars, and when a good ratio between these currencies is reached, according to the investor’s opinion, a reverse operation is carried out, and the euro is sold for dollars.
To generate income from such operations, the investor must buy the currency at a cheaper price and sell it at a more expensive one, or vice versa. The size of the profit depends on the difference between the purchase price and the sale price. If the investor has correctly predicted the price movement of the currencies being traded, with the price going either up or down, the investor will make a profit. If wrong – a loss will be incurred. Therefore, you can earn a profit not only on the appreciation of a currency, but also on its cheapening.
Transactions between banks are made with standard lots of $1 million. Obviously, not every private investor is able to collect such a sum. Therefore, to work overcome this issue, an investor can use a margin loan, otherwise referred to as leverage, provided by a broker. Such a loan allows an investor to use amounts of funds that are tens or even hundreds of times larger than the investor currently has. If, for example, the investor has $1000 to work with, and the margin leverage is equal to 1:100, then the client can already operate with a sum of $100 thousand while trading. This allows even with very small market fluctuations of 0.1–0.2% to lead to profits in the double-digit percentage range. However, just as quickly, if not even faster, you can lose your money this way. It is a double-edged blade.
The Risks of Trading
Keep in mind, that the apparent simplicity and accessibility of forex has a downside. You can just as easily lose all your money. Any investor can lose all of the money they invested overnight, should he make a wrong bet and wrongly guess the direction of the exchange rate.
In addition to market risks, like changes in currency prices, over which the investor does not have power, there are also non-market risks like the brokers’ risks. This can include bankruptcy, the quality and performance of the trading platform, the execution speed of orders, etc. These risks can actually often overlap all market changes. Therefore, the investor’s task in choosing an intermediary broker is to minimize these non-market risks that he has no control over.
Various brokerage companies offer demo accounts with virtual money to prepare future clients for trade on the market. The results that these traders obtain should be treated very carefully and with a critical eye. Most novice investors and traders tend to see only what they themselves want to see – the ease and the speed with which funds grow in their accounts. Successes in trading with virtual money serve as huge inspirations and are very well remembered.
When you manage to get rich so quickly, it seems like everything is incredibly simple, and you can start earning income from trading starting tomorrow. Failures, on the other hand, are quickly forgotten.
With any business, there is always the possibility of an accidental one-time profit. In order for profit to be non-accidental and regular, a deep understanding of the specifics of that particular type of business and economic laws in general is required. Only by observing and following known rules and restrictions on currency trading in terms of risk can forex trading become comparable to any other speculative trading, including trading in the stock or commodity markets. Adhering to these risk management rules, however, means profitability inevitably decreases to similar levels as of those seen in stock and commodity markets. That is not necessarily bad.
The foreign exchange market grants ordinary people the possibility to make money quickly and in large volumes. Forex trading legit. The income here is unlimited, but is nevertheless associated with high risks of losing.
To reduce these risks, you must simply do what has been already done, learn from veterans of the trade, and follow a strict game plan that your strategies present you with.
Every day, thousands of people wonder what earnings on Forex are like and whether they are legitimate at all. When these people start to trade, they always get an answer to these questions, sooner or later.