Can You Gain From Forex Trading ? - Doo Prime News
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Can You Gain From Forex Trading ?

Can You Gain From Forex Trading ?  

Investors can trade almost any currency in the world through foreign exchange (forex). In order to gain from forex trading, traders should be aware that they are taking on a speculative risk. In essence, traders are betting that the value of one currency will increase relatively to another. The expected return of currency trading is similar to the money market and lower than stocks or bonds. However, it is possible to increase both returns and risk by using leverage. Currency trading is generally more profitable for active traders than passive investors.

Owing to its high liquidity, 24/7 schedule, and easy accessibility, forex trading has emerged as a popular career, especially for people with a financial background.  Also, it provides the comforts of trading wherever and whenever at the trader’s convenience with their laptop or mobile which in return bring motivation for both young graduates and experienced professionals to consider forex trading as a career.

However, forex trading has its disadvantages, such as high risk and volatility.

With that said, there are several advantages that a trader can gain from forex trading:

 

Leverage 

One of the reasons why so many people are attracted to trading forex compared to other financial instruments is that with forex, traders can usually get much higher leverage than they would with stocks. While many traders have heard of the word “leverage,” few know its definition or how leverage works and how it can directly impact their bottom line.

Leverage involves borrowing a certain amount of the money needed to invest in something. In the case of forex, money is usually borrowed from a broker. Forex trading does offer high leverage in the sense that for an initial margin requirement, a trader can build up and control a huge amount of money.

Forex trading is available on high leverage, meaning one can get profit/loss exposure multiple times of the trading capital. Forex markets allow leverage of 50:1, so one needs to have only $1 to take a forex position worth $50. While a trader can benefit from leverage, a loss is magnified. Forex trading can easily turn into a loss-making nightmare, unless one has a robust knowledge of leverage, an efficient capital allocation scheme, and strong control over emotions (e.g., the willingness to cut losses short).

 

Be an Active Trader 

The currency market is a paradise for active traders. The forex market is the most liquid market in the world. Commissions are often zero, and bid-ask spreads are near zero. Spreads near one pip are common for some currency pairs. It is possible to frequently trade forex without high transaction costs.

With forex, there is always a bull market somewhere. The long-short nature of forex, the diversity of global currencies, and the low or even negative correlation of many currencies with stock markets ensures constant opportunities to trade. There is no need to sit on the side-lines for years during bear markets.

Although forex has a reputation as risky, it is actually an ideal place to get started with active trading. Currencies are generally less volatile than stocks, as long as you don’t use leverage. The low returns for passive investment in the forex market also make it much harder to confuse a bull market with being a financial genius. If you can gain financially in the forex market, you can gain anywhere.

Finally, the forex market offers access to much higher levels of leverage for experienced traders. Regulation T sharply limits the maximum leverage available to stock investors in the United States. It is usually possible to get 50 to 1 leverage in the forex market, and it is sometimes possible to get 400 to 1 leverage. This high leverage is one of the reasons for the risky reputation of currency trading.

 

High Liquidity 

In the Forex market, liquidity pertains to a currency pair’s ability to be bought and sold without causing significant change in its exchange rate. A currency pair is said to have high level of liquidity when it is easily bought or sold and there is a significant amount of trading activity for that pair.

Compared with any other financial markets, the forex market has the largest number of market participants. This provides highest level of liquidity, which means even large orders of currency trades are easily filled efficiently without any large price deviations. This eliminates the possibility of price manipulation and price anomalies, thereby enabling tighter spreads that lead to more efficient pricing. One need not worry about the high volatility during opening and closing hours, or stagnant price ranges during the afternoons, which are trademarks of equity markets. Unless major events are expected, one can observe similar price patterns (of high, mid, or low volatility) throughout the non-stop trading.

 

Volatility  

Volatility refers to the amount of uncertainty or risk involved with the size of changes in a currency exchange rate. A higher volatility means that an exchange rate can potentially be spread out over a larger range of values. High volatility means that the price of the currency can change dramatically over a short time period in either direction.

The major currencies frequently display high price swings. If trades are placed wisely, high volatility assists in enormous profit-making opportunities.

 

The Bottom Line 

If you still want to try your hand at forex trading, it would be prudent to use a few safeguards: limit your leverage, keep tight stop-losses, and use a reputable forex brokerage such as Doo Prime. Although the odds are still stacked against you, at least these measures may help traders like you to level the playing field to some extent.

Hence, it is essential for traders to understand that they will most definitely gain from forex trading if they were to trade by mastering trading techniques or strategies, having discipline, and also patience.

Ultimately, traders do not only gain financially from forex trading but also get to gain  experiences from the self-directed learning process through the complex price determination process and also staying discipline during trades.

 

Key Takeaways:  

  • A career as a forex trader can be lucrative, flexible, and highly engaging.
  • There is a steep learning curve and forex traders face high risks, leverage, and volatility.
  • Perseverance, continuous learning, efficient capital management techniques, the ability to take risks, and a robust trading plan are needed to be a successful forex trader.

 

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