Forex trading has been advertised on countless websites and infomercials across the country. Infomercials promise that investors will reap large profits from their Forex investments, but offer little information to back up their claims. Some advertisements boast of millions that can be made by consumers who purchase their costly programs or hire their financial advisors.
In reality, the startup costs for trading on the Forex market can be extremely low. Many websites online will let users trade paper or virtual money so they can get a feel for how the marketplace works. Users can perform these practice trades in real time just like ‘real’ trades until they feel confident enough to trade on the real Foreign Exchange market.
Can You Make a Fortune on the Forex Market?
There is no simple answer to this question. It is a possibility, but it is highly unlikely. Despite what advertisements and products claim, there are no systems that enable users to get rich quick. There are a couple of things that the Forex market has going for it that the regular stock market does not.
The biggest benefit of trading on the Forex market is the relative security. Most currencies will not change drastically from one day to another. Although a currency can become drastically depreciated, it will still be worth something and generally depreciation is relatively small. [Large ships don’t turn on a dime, currencies are much like very large ships but may still suffer from intraday changes.~ editor]
The Benefits and Risks of Leverage
Suppose the investor places $1000 in a Forex Account. The broker might then allow them to leverage it 10:1. This means that the broker makes a purchase of $10,000 while the investor only put in $1000. Leveraging means that the investor can make a higher return, but they also carry more risk. Since only 10 percent of the investment is contributed by the investor, if the currency falls 10 percent or more, the investor will be left with nothing or worse owe money (i.e. get a margin call requesting more funds). A key to successful trading is Risk Management. That means limiting losses on any individual trade to say 1% (or whatever) of your trading account.  See How Much Forex Leverage?
Amount Needed to Get Started in Forex Trading
Investors only need a few hundred dollars to get started. Although they will see smallerer profits with a smaller investment, after practicing with imaginary money it is best for beginners to start trading with small amounts rather than risking their entire nest egg. Infomercials on television promise that users can quit their day jobs and just trade on the marketplace, but this is generally not true. With years of experience and large investments, an investor may be able to live off of their trades. For a smaller investment, it just is not possible but with enough time and a profitable system you could grow that small stake into a large enough account to eventually create a living.
Why Trade on the Foreign (Forex)Â Exchange?
The best part of the Forex market is that users can access it 24 hours a day. Unlike the stock market, investments are completely liquid and can be carried out at any time, so you could trade during the hours you aren’t at your day job. Beginners on the market only have to invest a relatively small amount to get started. Additionally, the numerous websites offering practice trades with virtual funds makes it much easier to get a feel for the marketplace.
The best way to get started with making money on the Forex market is to get educated. There are many websites and articles that provide information and advice on getting started. Beginners should always use virtual funds or paper money until they get used to how the market functions and consistently are making virtual money. Once they make the leap and start investing, everything changes once again as fear of losing real money is entirely different from fear of losing virtual money. So users should gradually work their way up to higher dollar amounts. By learning the ins and outs of the market place first, investors can limit risk and set their financial future up for success.
Image Courtesy of Bing AI
See Also: