Forex is the most popular financial market where the idea of easy money sold to beginners. You need to invest a small amount of money, to analyze the schedule, click on the Buy or Sell button and timely collect the accrued profit. Further, the story is about a successful trader who was cleaning toilets a year ago, worked practically for food. He accidentally learned about the foreign exchange market, quickly completed training, and provided himself for the rest of his life in a short time.
If, after watching such an ad, a person begins to believe in the simplicity of earning money from trading. Then person deposits without hesitation and starts working – this is how the career of most gamblers begins which turn speculation on exchange rates into a substitute for a traditional casino. Such people actively start, often trade, think a lot about trading, and for several years completely stop working due to significant financial losses and impaired mental health. It is essential not to neglect the starting preparations and appreciate the pros and cons of Forex trading before bidding to avoid it. We will talk about this in this article.
Advantages of Forex Trading
Low entry threshold and minimal fees. The largest brokerage companies attract customers because they deliberately remove the requirements for the initial deposit. It allows you to split the lot and conduct transactions with any amount of money starting from $ 1. Smaller brokers set the minimum bet at $ 10, $ 100, $ 250 or $ 1,000 – there are more significant limits, but they include bonuses, personal coaching, and other privileges. That is, you can choose a reliable international broker with a license from a reputable regulator. You can conduct a series of transactions, gain trading experience, and even in the event of a complete failure, limit the losses to some small deposit.
Each transaction demands a small brokerage fee (spread) from traders for, the amount of which is set in advance and depends on the type of currency pair selected. They may also charge an additional commission (swap), which is for the transfer of open positions the next day. In other cases, brokers do not provide for any mandatory payments and draw up applications for replenishment and withdrawal of funds for free. Here the trader pays only at the rates established by the selected payment system.
An additional convenience is that when working with small deposits, you do not need to go through verification and document your identity. You can open a trading account in one evening, evaluate the capabilities of the currency market, and immediately withdraw money from the balance. Forex brokers still do not monitor tax compliance and leave this question to the discretion of traders. Such experiments are unacceptable in the stock market, and there is a mandatory legislative regulation for training with real money. If you try to break something, you will receive a warning or account lockout.
It is possible to combine forex trading with another job. The foreign exchange market operates around the clock five days a week. It means that each trader can use an unlimited number of trading styles. And he can earn money regardless of how busy he is and how much free time he has:
1) If there are only a few minutes a week for trading, then you can connect daily or weekly charts. And you make forex trading look like an excellent long-term investment.
2) If it is not possible to conduct analytics during the day, then you can completely switch to working with night trading sessions.
3) If there is a lot of time, then you can switch to scalping and conduct several transactions per minute, taking profits from small price fluctuations.
At the same time, to simplify the trading process, many free analytical tools have been developed for traders that they set up once. And send alerts themselves when they need to open the chart and enter the position. Separately, it is worth mentioning about mobile applications that make access to the market accessible and straightforward: there is a minute – you can take a smartphone and trade.
You can simplify the process or make money on the knowledge of others. Developers have created many unique applications for the Forex market platforms. It allows you to take almost any strategy and put it into automatic mode. You work with charts → com
e up with a set of rules for entering and exiting a transaction → translate these rules into a particular advisor program → add the created adviser to the terminal and make trading a source of passive profit.
If you are not interested in programming and developing your practical algorithm, then you can do social trading. It is when you connect to the world database of traders, select the best candidates, view their deals, and can copy every performing action.
You can go even further, use the PAMM-accounts service and transfer your money to professional traders or companies for a fee. In this case, you don’t have to do anything at all. You have to find a manager with the right level of profitability, see the terms of the contract, transfer money, and check the result at the appointed time.
Disadvantages of Forex Trading
It is difficult to get a quality education. The network has free access to a vast information base that affects almost all aspects of currency trading. Starting from the general scheme of the forex market and ending with a selection of diverse trading strategies. The problem with all this information is that it is only for beginners and not applicable in practice. All recommendations based on those observations that worked and were relevant once in the past. To successfully trade in real conditions, you need to go to the apprentice and watch those traders who live off the market now. There are few such people, they rarely teach and share secrets.
If it is not possible to find a good mentor, then all book knowledge should be tested on personal experience. You need to take each recommendation, work it out on your deposit, and experimentally collect all the patterns that can be profitable. If you don’t do experiments and don’t want to learn from a mentor, then at best spend a few years of your life. You will be interrupted by casual earnings and trade to zero. In the worst case, you fall into a debt hole and seriously harm your health.
High probability of facing fraud. The problem of many beginners is that they come to the forex market with the expectation of closing current financial issues. It is an excellent help for scams which are happy to use such naivety and imperfection of international law. Here is a typical fraud scheme used in 2019:
1) A person replenishes the deposit for some small amount (take $ 1000).
2) After a while, the broker manager contacts him and offers to make an interest-free loan to expand the initial deposit. The message here is this: the more money on balance, the faster you can earn and get closer to your dream. A person agrees and draws out a loan for $ 2000.
3) Now the trader has a balance of $ 3000. The problem is that the credit issued on special conditions that required a full repayment of borrowed funds within one month. If the trader did not make the payment, then his initial $ 1000 was lost, and he could not turn to protect his interests anywhere.
4) If a trader loses all and he refuses to repay the loan, the broker still wins. He gets a deposit of $ 1000, and $ 2000 of loan are originally fake money that under no circumstances user can not cash out and use for personal needs.
Issuance of fraudulent loans is one of the most harmless deceptions when at stake is only the initial deposit. It is impossible to foresee everything and to avoid the consequences. It is vital in any problematic situations to study the contract, consult with a lawyer, and be skeptical about lucrative offers.
Increased risk due to substantial leverage. When newcomers evaluate the pros and cons of Forex trading, often the decisive factor is the prospect of making large profits with minimal investment. Replenish your account with $ 100 → choose the maximum leverage → in case of a correct forecast. You can do just one deal to get a few thousand dollars and repeat the procedure.
When there is a small amount on the balance sheet, it is quite acceptable to use leverage. If the idea works, you can quickly earn money. If it does not work, then you will receive a small loss, and with the next deposit, you can compensate for everything. It is a one-time strategy that is suitable only for pampering.
If you try to use the maximum leverage for the transition from $ 10,000 to $ 100,000 or higher, it is the price of one error at the amount of time that you spent on raising capital. We paid $ 10,000 on collecting one year → used the maximum leverage and made a mistake → losing the entire deposit in a minute, and you will receive $ 10,000 again the next year.
Leverage is a publicly accessible magic pill that promises beginners instant results for their willingness to play with risk. If you refuse this and switch to safe trading, then for a gradual increase in deposit, you need a well-developed strategy. It is the missing link that we cannot forge without quality education. Here the circle closes, and we return to the first drawback when we need the right knowledge for work.
1) Forex is the largest interbank market that is accessible to any user and where you can earn money through timely transactions with different types of currencies.
2) From a technical point of view, the process of making a profit is straightforward. You can understand the main points within one day, establish a trading platform, conduct a series of transactions, and try to make money. It is pleasant for beginners who can carry out all of the above actions with a small starting deposit.
3) In addition to the technical part, each trader must perform intricate research work, which is the key to time entry and exit positions. Beginners do not take this into account and do not pay attention to high risks that run parallel to the prospects for significant earnings.
4) To decide on the start of work, you need to compare trading with the launch of a new business. Try to imagine that you are opening a small grocery stall in an area with a dozen hypermarkets and should organize everything so that for many years the business will be profitable. Will it turn out like this? With Forex, everything is the same. The only competition is much higher.
5) If you understand all the upcoming difficulties, but still want to try, then we recommend taking no more than three years into the experiment. During this period, you can try to combine trading with the main work and trade on a small deposit. If you manage to earn at least something and interest does not disappear – come to work with more significant amounts. You groped your sphere and can further develop. If all else fails and you lose several deposits, remember this lesson and put up with the fact that exchange trading is not suitable for you. It is better to spend time on self-development or searching for your favorite business, which instead of Forex will ask for satisfaction and stable profit.