Foreign currency trading is the largest financial market in the world and boasts a massive 3 trillion dollars of daily turnover. Such is the size of the forex market that virtually anyone can become a trader – with just a few hundred dollars to spare. Despite this vast potential for profitable trading, there are still a lot of myths about forex trading.
The biggest myth says that one needs to win the lottery to make a fortune in forex trading. This is simply not true – although it may seem to be true if you are trading large amounts of money. Even among seasoned professionals, sometimes traders win the lottery and find it so valuable to them that they stop trading altogether. Some traders make a good living out of simply guessing. No one can predict the global market with 100% accuracy. Even fewer can boast that they have consistently made a profit on their hunches.
A second myth regarding foreign currency trading is that it simply means throwing a few thousand dollars together and holding on to nan investment for years. This isn’t even close to being the best way to trade forex. A more realistic way to think about trading forex would be holding a few good solid trades that make you money. Generally speaking, we can define this as winning over losing trades.
The third myth regarding foreign currency trading is that the increase in volatility is always to your advantage. The only thing that holds the currency of one country’s value at a time when it is traded with others is the possibility that the value of the currency held by the traders fluctuates. It is not always true of course, but over time you can form a nice nest egg just by trading with a currency that has a slightly higher value than the one you traded away.
In a way, foreign currency trading is a ratio game. You are betting that the currency that you hold will either rise in value or be able to fall. So to do this, you need to pick two currencies that you believe will fall relative to the one you are holding. You then use this strategy to spread your investment around several different currencies to make a relatively significant amount of income when the times are correct.
So to sum up, you have two main ways of taking advantage of the rise in volatility in the forex market. You can either trade a low sticking Point with a long opportunity to expiry, or you can trade a high sticking Point with a short but realistic opportunity to make money. You will need to decide how much risk you want to take, but then again, it is your money so you need to be careful. Have a basic understanding of how forex markets work and how the currency values move, and you could become very rich very quickly.