Nowadays, it’s increasingly difficult to find viable opportunities in such a competitive job market. The unemployment rate in the United States is currently at 4.5%, and in the United Kingdom the unemployment rate is 4.7%. With tightening job markets, everyday folks are having to think outside of the proverbial box for generating additional income. While everybody cheers an economy that moves towards full employment, it isn’t necessarily a good thing for those of us locked in at insufficient income levels.
Fortunately, contrarian trading and investment opportunities are readily available. They present themselves in many forms, notably Forex trading. Otherwise known as currency pairs trading, FX trading is a speculative proposition. The currency pair features a base currency and a quote currency. In the GBP/USD pair for example, the GBP is the base currency and the USD is the quote currency. When you trade Forex online, the number of units of the quote currency is listed in relation to the base currency. For example, the GBP/USD pair may be traded at 1.2496. This indicates that every £1 is the equivalent of US$1.2496.
How popular is Forex trading?
Believe it or not, Forex trading is the world’s most widely traded market. It dwarfs the trading activity on the Dow Jones, the NASDAQ, the CAC, the DAX, the FTSE 100 and all others combined. The estimated daily trading volume in currencies is somewhere in the region of $5 trillion per day. Obviously, there is money to be made in currency trading, and that’s precisely why more people are entering the FX trading arena to seek alternative forms of income. It should be noted that Forex trading is also a viable investment opportunity, particularly since macroeconomic variables (geopolitical factors) can be taken into consideration and currencies can be held until they appreciate, or depreciate, relative to other currencies.
Currency trading is subject to volatility, and it is this volatility that determines the profitability of the trade. If a currency pair moves marginally from day-to-day, a trader would have to take out a much larger position to generate the equivalent profitability of a highly volatile trade that moves sharply in one direction or another. Regardless, it is possible to dabble in the currency markets with top Forex trading platforms like ETX Capital where a host of major pairs, minor pairs and exotic currency pairs can be traded. Besides for Forex trading, the prestigious brokerages offer indices trading and commodities trading.
How does Forex trading work?
Fortunately, regulated Forex trading brokerages make it much easier to trade currency pairs by providing a wide range of trading tools. These include charts, analysis, and a wealth of information on current market conditions. Since currencies tend to fluctuate less than 1% per day, the only way to generate substantial profits on currencies is by taking out much larger positions than they could otherwise afford. This is done with leverage.
Currencies can be traded with leverage of 200:1, meaning that a deposit of £500 would open up a position worth £100,000. As with other forms of spread betting or CFD trading activity, it is important to remember that the trade can go either way. It is possible to lose more than your invested amount. If a trader has a negative perspective on the GBP/USD pair, he or she would go short on the sterling and long on the USD. This means that you sell the GBP/USD pair. Naturally, the real exchange rate of the currency pair is considered when the trade is opened.
Is Forex Trading Right for You?
Perhaps. If you take the time to understand the mechanics of Forex trading, it will certainly prove to be an intriguing and profitable activity. FX trading is an acquired skill, and that’s why the experts recommend using a demo trading account before you deposit and trade for real money. Many traders have made and lost a fortune along the way, but those traders with a sound understanding of the fundamentals tend to prosper in the long-term.
A careful mix of capital preservation strategies and sound decision-making processes bodes well for FX traders. Some experts say that you need to go all in with Forex trading and make it a passion of yours. Sage advice is as follows: Don’t quit your day job when you’re trading Forex. Learn the tricks of the trade while you are gainfully employed and become better at Forex trading over time. It’s never a good idea to rely wholly on any form of trading activity to meet exigencies. Careful and methodical actions are more likely to result in success.