People who are interested in forex trading must know that this market is full of opportunities and huge profits can be made if you take the right steps. However, you also have to be cautious because the market is full of risks as well.
Forex Trading Basic
Foreign exchange, known as forex, FX, or currency trading, is a decentralised global market where people can trade all the currencies in the world. Due to the highly competitive pricing and liquidity of this market, it is also the largest liquid market. It is a great place to make money, and there are many reasons why people choose it. First, the forex market is open for 24 hours on the five and a half-day of the week.
So, traders can find an active pair to trade at any point in the day. Next, a forex trader can trade and play the market both ways, whether it goes up, down, or remains in a tight range. Moreover, traders can enjoy high liquidity and easy accessibility at a low transaction cost. Lastly, the forex market offers the benefit of trading with leverage, which means that you can take a larger position than the initial investment.
How Much Money You Can Make?
If you are considering forex trading for a living or thinking about doing it part-time, the first question that comes to mind is how much money you can make from it. Now, when you begin to research about trading for the first time, you may come across many sellers trying to convince you that their trading system can help you to make a certain amount of profit per month.
However, you must keep in mind that there is no such guarantee in this career and you can only rely of probabilities and possibilities. No matter what you do, it is impossible to ensure a fixed profit every month. Nevertheless, you will indeed have a great month every now and then. The most important thing is to remember that trading is a slow incremental process and not a sprint. You need a lot of discipline if you want to be successful at it, and you must take risks to earn profits.
Do Forex Traders Make Money?
There are many forex traders who make a great amount of money from trading, but there are also traders who encounter loss more. Skill, intuition, patience, and experience make the difference here. Top and successful trades do not rely on just any trading system. Instead, they learn and develop the systems through trial and error. This helps them to make constant profits regularly. However, remember that these top-notch traders also face loss since the currency markets are volatile.
As mentioned earlier, risks are deeply involved with forex trading. However, although you cannot escape them, you must recognize and try to avoid them so you do not end up losing all your capital. The market trades currency pairs and you can go wrong on your decisions on many occasions. For example, you may expect the value of the Euro to increase compared to the USD, and thus, go long on EUR/USD. However, the guess could be wrong with the trade resulting in moving against you. This is the most common risk in forex trading. It can also be risky if you trade less liquid and less popular currency pairs in a situation with an unstable transaction. The reason behind the unstable transaction can be your choice of an unreliable trading exchange or broker.
Keep in mind that banks make the majority of forex transactions, not individuals. They use forex to lessen the currency fluctuation. Complex algorithms are also used in the computerized trading systems for managing some risks. You need to watch out for these major risk factors in forex trading –
- Exchange Rate Risk
- Credit Risk
- Liquidity Risk
- Interest Rate Risk
- Transactional Risk
- Country Risk
- Risk of Ruin
- Marginal or Leverage Risk
Example of Successful Forex Traders
George Soros: George Soros is one of the greatest forex traders and investors in the world. He is a reputed money manager who made profits over one billion euros from his short position in trading. Soros is popular for doing this ahead of Black Wednesday, which was on September 16, 1992.
Stanley Druckenmiller: Mr. Druckenmiller was a colleague of George Soros for over a decade at the Quantum Fund and he considers Soros his mentor. One of the best day traders, he manages billions of dollars for his own fund named Duquesne Capital. His current net worth is more than $2 billion.
Bill Lipschutz: Known as the Sultan of Currencies, Bill Lipschutz earned profits of hundreds of millions of dollars without any prior experience in the currency markets. He considers forex a psychological market. Mr. Lipschutz believes that price action can be determined with the help of market perceptions and pure fundamentals.
Paul Tudor Jones: With a net worth of $4.5 billion, Paul Tudor Jones is one of the richest day traders alive. He made a profit of 62% from short positions during the October 1987 market crash. His earnings for his company that year were $100 million. From a commodities trader, Tudor Jones became the Chairman of the NYSE.
Andrew Kreiger: One of the most notoriously aggressive traders of his time, Andrew Kreiger was granted a huge trading limit of $700 million at his company the Bankers Trust, while the normal limit was $50 million. After the October 1987 crash, he earned $300 million for his company within a few hours by holding a short position on the NZD with leverage of 400:1.
Michael Marcus: The founding member of the Commodities Corporation Company, Michael Marcus is one of the best professional forex traders in the world. He held a $300 million position in German markets during the Ronald Reagan era of the presidency.
If you want to start your career in forex trading, learn about the basics thoroughly, and test various trading techniques on demo accounts before going live.