Is Currency Trading Worth the Risk?
Forex related forums are full of stories of wannabe traders who have blown their accounts. There is no shortage of stories about Wall Street firms which have lost millions of dollars. The trading risks are further aggravated by the lack of regulation and numerous cunning brokers who are on the outlook to prey on newcomers with little knowledge and experience. Finally, the technology, market analysis tools, and the information edge of major financial institutions can be hardly matched by retail traders. Despite these drawbacks, Forex trading continues to lure numerous traders who are constantly looking for an opportunity to earn and better their standard of living. So, is currency trading worth the risk? Or, it is simply a mirage which wannabe traders chase? Let us find it out in this article.
A profession can be considered profitable and worth the effort and risk when:
- It offers above-average earnings.
- It gives adequate leisure.
- It keeps physical and mental stress to the minimum.
- It does not involve a steep learning curve.
- It requires minimal money investment.
Based on the above factors, let us assess whether currency trading is worth the risk.
When a beginner seeks advice about the earning potential in the foreign exchange market, there is a high probability that the person offering free advice will say there is unlimited earning potential. In most cases, it will be enough for the person who sought advice to start dreaming about the purchase of a Ferrari or Lamborghini. However, if the person who gave the advice is asked how much he has made so far, then there will be a quick change in the facial expression. Usually, it would be followed by statements like “I doubled, but lost when I was not feeling well” or “the market reversed when I was sleeping,” etc. There is no doubt that the market offers unlimited earning potential. However, it is not easy to realize the possible rewards.
Tremendous dedication is a must to consistently earn money in the Forex market. Some people deceive beginners by saying that we can practice in a demo account for a few weeks or months and start earning the equivalent of what a doctor or an engineer earns after several years of rigorous study. A trader should always keep his eyes and ears open. It is a lifelong studying process. No trader can affirm that the next trade he is about to enter will result in profit just because he has a successful track record. So, there is too much at stake when a person decides to trade in the currency market full-time. That is one of the reasons why seasoned professionals recommend part-time trading to beginners.
As currency markets are not active during the weekends, Forex brokers discourage participation by switching off their servers on Friday, usually at 20:00 GMT or even earlier. This provides complete, compulsory leisure for two days a week. Other professions may or may not allow a person to stay at home during all weekends in a month. So, the free time enables a trader to refresh physically and mentally. Forex does have an advantage over other professions in this regard. Notably, a trader can stop trading a few days to take care of some other family issues, without seeking permission from anyone. Not all jobs allow such flexibility.
A successful trade is nothing but a well-informed guess. There are innumerable external factors that determine the outcome of a trade. Therefore, a trader, regardless of experience, will face a certain amount of stress while having open positions. The stress would only increase with an increase in the use of leverage. Losses are usually aggravated by beginner traders who get stressed out and try to quickly recover the losses with another trade (revenge-trading). This second trade usually ends in an even bigger loss. However, people who are in other professions do not face such issues often. Even if they falter, most companies would have a backup plan or have someone who can straighten it up. Even professional traders who trade in a disciplined manner are subjected to stress. No trader can laugh at losses. The responsibility increases with each consecutive loss. Therefore, Forex trading is certainly not worth the risk when an assessment is made purely based on stress.
Nowadays, most of the Forex brokers do not put any restrictions on minimum capital required for trading. However, one should not dream of making a million dollars by starting with an investment of $1 or $10 as Forex brokers usually advertise. A low investment decreases the chances of growing a trading account. Furthermore, there will be a lot of temptation to use higher leverage, which will ultimately result in wiping off the account. A reasonable investment of about $10,000 or above is required to start generating consistent, sustainable profits in the medium-term. However, there are businesses and professions which can be started and managed successfully with a much lower investment. To sum it up, even though, there are practically no restrictions when it comes to minimum capital requirements in Forex trading, still, to generate consistent income, traders will probably require higher investment compared with other professions and businesses. From this point of view, other professions and businesses certainly have an edge over Forex trading.
Forex brokers and currency trading related forums publicize that they provide all educational tools to master trading in a short span of time. There is no doubt that the educational tools offered are of immense value and impart trading related knowledge in the best possible manner. However, it takes a lot of time for a trader to perform fundamental and technical analysis in a systematic manner and arrive at a profitable conclusion. Many a time, at least two indicators will show contradicting signals about the direction of the asset’s price movement. Only a trader with in-depth knowledge will be able to segregate real and fake signals. Likewise, two data release may sometimes contradict each other. So, a beginner may find it difficult to choose the direction based on the overall market sentiment. The learning curve is definitely steep in case of the Forex market and there is no guarantee that a trader will complete it.
From the above discussion, it can be understood that currency trading has an advantage when factors such as the availability of leisure time are considered. However, it does have a drawback when factors such as stress levels, learning curve, capital requirements for sustainable income, and earning potential are taken into account. Other professions do not put a person under frequent stress. Furthermore, there is a guarantee of fixed earnings and a reasonable end to the learning curve. So, we can argue that currency trading is only suitable for persons without immediate financial concerns and with great desire for knowledge. People who have their focus only on money should look for other business opportunities.