Are you in the process of considering Forex trading as a part or full time money making venture? Maybe you’re considering using the Elliott Wave Trading theory as part of your strategy If so, you’re not the only one – on the surface, trading can look like an incredible way of making some serious money.
That said – it’s not without its downsides – but they can be hard to find in a world that wants to take your hard earned cash in return for services, courses, tips and expertise.
We’re drawing on decades of Forex trading knowledge to cut through the noise – and give you some very real pros and cons to consider before you start out.
Low entry points
Generally speaking, the entry cost involved with trading on the Forex market is very small – and there are no traditional commissions to be paid.
This is because FX brokers tend to make money from the spreads between currency pairs, so brokerage charges aren’t needed. When compared to trading stocks, shares and securities – or more recently, cryptocurrencies – this is makes Forex an appealing prospect.
So, where a small amount of capital wouldn’t get you far with equity, futures or options – Forex traders face no such limitations. What’s more, margin trading offers you the chance to scale your stake up – although it does come with an amplified risk.
Trade in a way that suits you
There’s no one method that is guaranteed to work with Forex trading, so whether you’ve got an eye for the geopolitical, a favouring for outright mathematics or a desire to study patterns spanning years of trading history – you can do so – and potentially make a profit with the data you gather.
What’s more, the level of risk and reward is controlled almost entirely by you. Forex pairs tend to be extremely stable – so there are options for low risk, high-volume strategies – as well as higher risk margin trades when you really want to get the adrenaline rushing.
If you’ve considered trading in equity markets the prospect of needing inside knowledge on business performance will feel out of most ordinary people’s grasp. Sudden market notifications of huge losses or enormous dividends can cause your portfolio to spin out of control – and unless you were sat in the board room when they were announced, there’s not much you can do.
With Forex trading you’re entering into a decentralised marketplace – and even the central banks that have a lot of sway tend to be coming from a predictable place that the market has somewhat accounted for. In effect – you have the potential to know as much as the biggest players in the game.
Lots of variety to trade on
There are 28 currency pairs that you can trade on right off the bat – and switching between pairs is easily done if you want to trade with particular patterns or political and economic factors at the front of your mind.
Try before you trade
Since Forex trading is packed to the brim with technical terms and operating procedures, most brokers and execution services offer virtual trading platforms where you can cut your teeth.
This can be a great opportunity to have a dry-run, without any real capital put at risk – and also offers more established traders a place to play out new methods and strategies before putting their money down.
There’s no getting around the sheer complexity of Forex trading – and unfortunately, there’s no ignoring one set of factors and hoping they don’t impact your trading – because it’s likely that they will.
While this can be good for people who have an eye for one particular set of influencing factors on the market – it does mean that being somewhat educated on all factors is important if you want to trade safely.
Leverage equals risk
Once again, while we mentioned leverage as a positive when it comes to supporting your low capital entry to the marketplace, this leverage comes with significantly increased risk.
For example, taking advantage of a 50:1 leverage turns your £10 in to a Forex position of £500 – and while that’s understandably beneficial if your currency strengthens – it also stands to put you in a difficult position if you start to see pips dropping.
Particularly when trading with leverage, you can see your losses outweigh your deposits – and when that situation repeats, it’s can leave you in a difficult, if not impossible position.
Hand in hand with the almost infinite number of influencing factors on a currency comes a volatility that rarely bites – but when it does, there’s nothing that can be done other that sitting tight and watching your currency hit the red.
This volatility can be somewhat counteracted when dealing with stocks and shares – since shareholders have some sway with the management of the company they’re invested in, but with currency, there’s no such influence. What’s more, 24 hour markets mean that unless you can survive with zero hours sleep (hint; you can’t) then there’s a level of anxiety about how you find the market each morning when you wake up.
No standard training
Although it’s true of most marketplaces, there’s no standardised learning or training you can put yourself through to emerge from the other side as a fully ready and able trader. While this is an exciting prospect for some – it’s intimidating for others – and requires you to have a good idea of what’s a legit learning opportunity and what’s just an opportunity to take a newbie trader’s money.
Because there’s no standard process to go through, you’ll also find that the majority of traders pack their bags and go home when their early trades don’t go as planned. If you’re not willing to roll with the punches that early Forex trading will send your way, you might be better carving out a role in a more traditional discipline.
We’re not here to tell you whether or not Forex trading is right for you – that depends on how you feel about the pros and cons we’ve listed. What we will tell you is that Forex trading can be very difficult – but with some knowledge of techniques, an attitude that accepts on-going learning is needed – and a good plan, Forex can be an engaging and prosperous pursuit…