Forex trading involves buying or selling a currency pair to make a profit from its movement. But, why do currency pairs move in the first place?
Except they’re in a monetary union, like the Eurozone, every country has a currency of its own. The US dollar in the United States, the Canadian dollar in Canada, the Pound in the United Kingdom, and so on.
A currency reflects the shape of that respective economy. A stronger economy has a stronger currency.
The Forex dashboard comprises different currency pairs. Or, pairs two currencies with one another.
They reflect the differences between the two economies. As such, they move a lot.
This is what matters for Forex traders. When the currency pairs move, there’s scope for some profit to be made. Or, a loss.
Why is Forex Trading Difficult?
Forex is the most difficult financial market in the world. If you make it here, you can make it in any other market.
Other markets have their technicalities, specific conditions, and so on. In some cases, they are even limited.
Not the Forex market. Over five trillion dollars change hands every day in this market.
This is both a blessing and a curse. Blessing, because traders can virtually sell or buy unlimited amounts.
Do you want to dump a hundred lots of a currency pair? Not a problem in the Forex market.
Liquidity is there. But, with liquidity, comes risk.
Prices change in a blink of an eye. On no new, no nothing. Simply, they stretch for some stops.
The players in the Forex market make it very difficult for traders to succeed. Central banks, Forex brokers, liquidity providers…all have an interest in this market.
Some apply the monetary policy, like is the case with central banks. Others, simply trade in the opposite direction of their clients, like some Forex brokers.
But, the most important factor comes from the algo-driven conditions in the Forex market. High-frequency trading, or algo-trading, is king here.
Why is Forex Trading Profitable?
Retail traders didn’t have access to the interbank market until relatively soon. A decade ago or so, technological advances allowed for brokers to target retail traders.
As such, every trader’s dream of financial independence come closer to reality. Not that everyone wins.
But, at least the idea that one can make it on the financial markets attracts people. And, some do make it.
With knowledge and a disciplined approach, trading is profitable. It may be the most time-consuming and full of stress job on earth, but it is worth it.
Fortunes can be made virtually overnight. That is, in a shorter period than working a regular day job.
But, careless traders can lose too. Unfortunately, retail traders fall into the second category most of the times.
Even though conditions are against retail traders, the fact that now they can access the interbank market at a very low cost offers an amazing opportunity. One that didn’t exist some time ago.
As such, the possibility is there. Hence, only the idea that huge profits can be made, attracts and will still attract people to Forex trading. No matter how hard it is to make it in this industry!