Are you considering investing in the Forex market but aren’t quite sure if there really is money to be made? While you have heard that some investors make a tidy little fortune in Forex, you hear of others losing their proverbial shirt. So, you know there ismoney to be made, but how much can you realistically make? That depends on several factors you should understand before going in. Here is some of what you should know as a new Forex investor.
A Quick Look at Forex
In simple terms, Forex is an over-the-counter market (OTC)where foreign currencies are exchanged. It is a market which is open 24 hours a day, five days out of every week and it exists, as stated above, wherever these currencies are exchanged. While you will find some brokers who deal with exotic pairs, most brokers you will likely encounter handle combinations of what are considered to be the five major currencies. Since Forex is traded in pairs, that leaves you with numerous possibilities when trading in pairs. It’s simple math. Unfortunately, that’s where the simplicity ends.
What Are the Major Currencies?
Before getting into how much you can make, it’s important to understand why the major currencies are so important. Take a look at those five currencies and you’ll understand why almost immediately. They are:
Although those are considered the major currencies, there are other currencies frequently traded against the majors on the OTC market such as the minor currencies of the Japanese Yen (JPY) and the Swiss Franc (CHF). Exotic currencies like the Swedish Krona (SEK) or the South African Rand (ZAR) are traded against major currencies and are referred to as “exotic pairs.”
Examples of Minor and Exotic Currency Pairs
Sometimes it is more exciting to wager on the movement of a minor or exotic currency against a major player. In Forex, as mentioned above, the major currencies are based on various factors, with stability being of major importance. Then there are other currencies in countries that are relatively stable over a period of time and those would be the minors. Finally, you have exotic currencies, and these are the ‘new kids on the block.’ They are typically currencies in developing nations with economies that are rapidly growing. Take a look at the minor and exotic pair examples below and you’ll get a better idea of just how many ways you can play the Forex market.
Some of the most traded minor pairs are:
Popularly traded exotics are:
Can you see the one thing all pairs have in common here? That’s right! They are all currencies traded against a major player. Remember those majors listed above? What makes them minor or exotic would be the currency they are being traded against.
What Is the Point of Trading in Pairs?
So now you know a little bit about the major players in the Forex market and you may be wondering what exactly it means to trade in pairs and why we trade in pairs anyway. Actually, this is a complex question but the simple way to understand it is this:What you are doing when you trade in Forex is ‘betting’ one currency against another. You are predicting or forecasting based on the market and geopolitical background that one currency will rise or fall in value against the other. That’s the whole point of trading in pairs. The complexity revolves around being able to read the market and know just when to pull out to make the maximum profit or sustain the smallest loss, which does happen.
Why Trade Major Currency Pairs?
Does anything strike you yet as to why those fiveabovementioned currencies are considered to be the major currencies traded? The common reasoning is that they are the most liquid based on the fact that their underlying economies are historically strong. But markets don’t always move in the direction we expect them to and this is why you need to be realistic in what you can expect to gain. Are you beginning to see that Forex might be just a ‘bit’ more complex than you might have imagined?
Look, Listen and Learn
Let’s get back now to the original question, “How much can you realistically make trading Forex?” The best answer you can be given is what you remember your teachers in school telling you day after day. Look, listen and learn. Have a read of the guides on sites like InvestinGoal where there are pages upon pages of information you should understand before sinking your entire life savings into the market. In fact, you’ll probably learn that this is a huge mistake right out of the gate. Start small and work your way up. The key to the Forex market is in understanding that you can earn big profits if you forecast market movement correctly, but if you don’t, you can sustain equally huge losses.
Never go into Forex blindfolded and that is why informative sites like InvestinGoal are crucial.
Were You Looking for an Easy Answer?
In the end, there is no easy answer and to give you one would be a scam! There is money to be made in Forex but you need to know what you are doing. Some people copy trading styles of other seasoned Forex traders and others learn the ropes slowly, one small trade at a time. The beauty of Forex and its major appeal is that you don’t need huge sums of money to get started. However you choose to enter into the Forex market, just remember two golden rules:
The first is that it is a volatile market that moves quickly, so be ready to buy or sell on a moment’s notice.
The second, and perhaps most important, is to set realistic goals. Again, you can make a fortune in Forex, but it won’t happen overnight like market fluctuations.
Forex is a fast-paced market that you need to understand. Learn the golden rules and you can win big. But always go in with your eyes open. That’s the key.