By: Hillel Fuld
The Forex market is enjoying some serious popularity over the past few years, and some might even go as far as to claim that the recession has only made Forex flourish. Whether or not that is the case, the fact of the matter is, Forex is not only the largest financial market on the planet, no other market even comes close.
While Forex was once reserved for banks and large scale financial institutions, ever since the introduction of the Forex retail market, any person interested in the world’s currencies can trade them. In fact, as opposed to other leading financial markets, a person inclined to trade Forex can do so with close to no initial investment or capital. Without taking sides in the famous “Forex Leverage: For or Against” debate, I will say that the mere fact that you can trade millions of dollars with as little as a few thousand is a unique and helpful trait of the Forex market.
Having said all that, I will say that as great as the potential for profit in Forex is, the dangers are even greater. Since we mentioned leverage, I will say that the higher the leverage, the greater the risk. A Forex trader or alternatively, a person considering trading on this tremendous market, must do some serious thinking and question asking before risking the first penny on the currency market.
Forex brokers will have you believe that just like throwing someone in the deep water is the best way to teach them how to swim (some will say, do not try that at home), Forex trading is the same, just jump in and enjoy the ride. This is not the case! Succeeding in Forex requires a lot of preparation, both in terms of deciding on a broker, as well as educating yourself on the risks and rewards of Forex trading.
The following is a list of the primary questions everyone should ask themselves before trading the Forex market:
What is Forex? Seem a little too simplistic to you? Well, it’s not! The importance of this question is unparalleled. Before investing your first dollar, it is important to make sure you can answer this question in great detail. You should know when Forex was "founded" (it kind of always existed), how much it has grown, what the future holds, how the experts analyze the market, and many other questions that all fall under the category of “What is Forex”? Before buying a car, you do your research and become an expert on the car that you are considering, don’t you? So why should risking money on Forex trading be any different? First, familiarize yourself with what you are about to invest in, then and only then should you start trading.
Who Am I? OK, I know you think you are noticing a pattern here. A pattern of simple questions. Well, this is far from simple to answer. If you intend on risking your hard earned money on Forex before knowing who you are as a trader, you are making a serious mistake that might lead to your ultimate failure. Ask yourself what kind of trader you are. Do you hate risks or do you flourish under pressure? Are you a technical person or do you think that the fundamental analysis school of thought appeals to you more? Are you looking for short term and smaller profits or large scale and suspense-filled trading? You must answer these questions and more before trading Forex. Make sure you know yourself well, not only when life is good, but also how you react in high pressured situations. If pressure makes you buckle for example, you might want to consider a different profession.
- What is My Budget? Here is a tip for you if you are just getting started in Forex. Put aside some money for a few months before opening an account, money you can afford to lose. Do NOT under any circumstances risk money that you need in order to put bread on the table. Sorry to be the bearer of bad news, but 90% of traders lose their money in Forex. I know you would not be trading unless you thought that you were going to be among the 10%, but objectively speaking, the statistics are not in your favor. Make sure you do not ruin any lives by losing money in Forex. At least in the beginning trade money, with the mentality that you are going to lose that money. If you do, you won’t be disappointed first of all, and second of all and more importantly, your life will go on. Once you have established that you know what you are doing and you are seeing steady profits, then you can begin to trade on a larger scale aand even risk money you would prefer not to lose.
In conclusion, these are just some of the many questions Forex traders, new or experienced should ask themselves regularly. In general, it is a good practice to not let your emotions have any involvement in your trading. One way to do this is to ask yourself objective questions about your financial goals and how to intend to achieve them.