Back in November 2014, A Bloomberg report came out with some grim statistics for currency traders. It read about 68% of retail traders incur losses in currency trading. While the number was slightly lower than the percentage of traders who lost money in the stock market, it was still more than the majority.
So, then, why should you consider trading different currencies? Despite the hefty percentage of people losing money in the forex market, there seems to be no shortage of liquidity in currency trading. What drives them to take such risks? Is it really worth it? We try to find out from below.
What is Currency Trading?
If you didn’t know it already, currency trading is the act of purchasing and selling currencies in the forex market. It is also referred to as forex trading, a short for foreign exchange trading. To put things simply, if you buy, hold, or sell one particular currency with another currency to make some profit, you are trading currencies.
The forex marketplace is where forex trading happens. It is a legitimate, regulated market where traders and investors act as the seller and the buyer of different currency pairs. Like in any trading activity, the price of each currency pair depends on a number of factors like socio-economic conditions, political stability, and most importantly, the correlation between demand and supply.
It is the largest financial instrument market in the world, with about $2 trillion traded on any given day. Considering the volume, it’s easy to imagine it to be a highly profitable endeavour. But money-making is never as easy as it seems.
Starting Out as a Currency Trader
If you have travelled abroad, you may have exchanged currencies before, no? Things happen in a pretty similar way in the forex markets too, making it look pretty simple. The stats, however, paint a different picture.
Anyhow, the reason behind traders losing money doesn’t lie with the market being a scam. Rather, it leans more toward the lack of expertise among the traders. You see, operating in the forex market is like running a business. You have to have or acquire a few skills in the context of the currency market. It includes learning about trading terminologies, fundamental analysis, technical analysis, leverage, risk management, trading strategies, etc.
Most of all though, the beginning trader must understand the risks associated with forex trading – just enough to survive the initial phase until you learn the basics and get some experience in the forex markets. With relatively less volatility than the stock market, it may even turn to be a safer investment strategy, only if you can get a hold of your penchant for leverage and quick riches.
So, yes, currency trading really works if you are trading with the right knowledge, determination, and emotional intelligence.
