Forex trading is a 24-hour market where the commodities being traded are the currencies of various nations. The forex market is the largest market in the world with an estimated value exceeding USD 3 Trillion everyday. Being an online market place, transactions are not restricted by geographical or physical boundaries.
Trading is done constantly and simultaneously through forex brokers. Your forex investment increases or decreases in value depending on currency movements.
The conditions of the forex market can alter at any time in response to real-time events. However, it is pertinent to note here that a greater percentage of all trading is speculative, implying that most traders are hoping to make profit based on the movements of a particular currency pair.
Advantages of Forex Trading
(a) 24-Hour Trading – You can trade forex 24 hours a day and 5 times a week with access to global forex dealers and brokers.
(b) Any individual or organization can trade forex. Financial institutions, Banks, Insurance Firms, Individual and Corporate Investors are involved in forex trading.
(c) Superior Market Liquidity – The liquidity of the foreign exchange market ensures that there are always buyers and sellers trading on the various currencies.
(d) The potential to make profit in both rising and falling markets. The volatility or continuous movement of the market ensures that currency pairs are constantly strengthening or weakening against each other.
(e) Leverage – Leverage enables a trader to control or hold a position greater than his margin deposit. This means that with an initial deposit of $1000, I can control positions ranging to $100,000.
(f) Zero Commission Trading – There are many options for trading forex without paying any commission. This makes the market very enticing for frequent investors.
BASIC REQUIREMENTS FOR INVESTING IN FOREX
(i) A computer with an Internet connection.
(ii) Capital (also known as margin)
(iii) Expertise or Knowledge – The fact that forex trading is very volatile and risky makes it necessary for any investor to get proper training, knowledge and resources before investing money.
REASONS WHY INVESTORS LOSE MONEY IN FOREX TRADING
(a) Insufficient Knowledge and/or Expertise
The attraction of quick money in forex entices many investors into investing their money without sufficient training and knowledge. Adequate knowledge, experience and dedication are critical to success in forex trading.
(b) The lure of quick money or greed
Many investors expect to hit it big with forex and as a result, they are not content with taking little profits at a time, but tend to go for the big one which is usually an exercise in futility.
(c) Fear – This is a major problem especially with beginners. It is better to trade forex with money you can afford to lose. This is because the highly volatile nature of the market ensures that there is no guarantee of making profit at any particular point in time.