People looking to enter Forex trading always seem to have one question in mind - does currency trading work?
Forex or currency trading involves the buying and selling of currency pairs belonging to top countries. But some traders would disagree that Forex involves the buying and selling of currency pairs and rather completely based on speculations.
Forex trading goes as back as during ancient ages. During modern times currency exchange took place during the 1850s in the USA. Many a trader consider 1880 to be the year for the instigation of foreign exchange. Online trading of Forex began post-2004 with the widespread increase of the internet.
With $5 trillion transitions made every day, Forex market is the largest currency exchange in the world. Currencies of the top countries get traded here and traders make profits owing to a single currency pair exchange rate.
But although with $5 trillion getting traded everyday people still question whether currency trading works. Trades lose money every day that makes newbies question the worthiness of the Forex market.
Losing money is one of the side effects of Forex market and no trader can succeed without losses. Several factors can stop traders from making profits such as:
1. Political and Economic events
Political and economic events play a major role in Forex market. Government level decisions affect the economy which directly influences the foreign exchange market. For example, when Greece announced their debt crisis in 2015 the EUR/USD pair went haywire which led numerous traders to lose money. Again, the Brexit announcement also came with several consequences that led to failures. However, several traders took advantage of these situations and made profits like they have never before.
2. Inferior Risk Management
Risk management in one of the key to protecting profits and stop losses. Traders with poor risk management tend to lose more than they have gained. The question does currency trading work arises yet another time here. Beginners who plan to enter Forex trading need to remember the importance of implementing Stop losses and selecting a reasonable lot size.
Emotions play the most significant part in Forex trading as they decide whether a trader will make profits or go down with an empty account. Traders working with greed think they can make profits from every pip and that’s where they are wrong. Beginners need to keep calm and not let greed take over them.
Fear, another factor also influences how a trader remarkably. Losing two consecutive trades at once does not mean they will lose the 3rd one. Patience is the key to success and traders with patience succeed the most.
4. Insufficient market Research
Market research and analysis holds the crucial importance of successful trading. Traders need to make an effective scan of the prevailing market for the currency pair they are trading before starting a trade.
The answer to the question - does currency trading work is the above which beginner traders need to follow in order to make profits. Beginners can also visit LiteForex for more information on Forex trading.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.