Forex Trading - Why Do Many Traders Avoid Trading Currencies?
James Woolley
March 27, 2010
Forex trading is as popular now as it's ever been. However for those people that have never traded currencies, it can be a very scary proposition. Indeed a lot of people decide to stick with stocks or bonds, for instance, when trying to increase their overall wealth. So why is forex trading such a daunting prospect?
Well for a start there is no getting away from the fact that there is a lot to learn. Sure you may understand which currency pairs are the most widely traded, but there is a lot more to learn than that. For a start you need to understand how currency pairs actually move.
In the long-term prices are affected by various economic factors such as interest rates, employment figures, manufacturing data, consumer spending, etc (and how they may change in the future). So for instance if you were looking to take a long-term position on the GBP/USD pair, you would have to take these figures into account for both the British and American economies to see which economy is in a stronger position. This will give you an idea of which currency is likely to be the stronger in the coming months and years.
In the short-term prices are obviously less affected by the wider economic picture, but they still have an impact on the markets. This is because there are lots of economic data releases being announced every day.
Another reason why forex trading is quite daunting is because you really need to learn about technical analysis if you want to generate consistent profits. It's not essential of course, but most people I know study charts and various different indicators in order to help them find high probability trades. This form of analysis can really help you become a profitable trader because away from the major data announcements, the price of a particular currency pair will often conform very well to basic technical analysis techniques.
A final reason why people are put off forex trading is simply because there is a danger that you can lose a lot of money. This is particularly true if you use leverage. However my advice would always be to start off trading very small stakes. In fact you should forget about leverage altogether. Just start off with a small amount of capital and enforce a strict stop loss policy to ensure your maximum loss never exceeds more than around 3% of your overall balance.
Forex trading can be a very rewarding profession, as I've found out myself in recent years. If you take the time to learn all the basics and teach yourself how to apply technical analysis, then there is no reason why you cannot come up with a profitable trading system and earn yourself some decent money.
Click here for more information about a forex course that will teach you all the basics of currency trading, and to read a full review of Forex Nitty Gritty.
Well for a start there is no getting away from the fact that there is a lot to learn. Sure you may understand which currency pairs are the most widely traded, but there is a lot more to learn than that. For a start you need to understand how currency pairs actually move.
In the long-term prices are affected by various economic factors such as interest rates, employment figures, manufacturing data, consumer spending, etc (and how they may change in the future). So for instance if you were looking to take a long-term position on the GBP/USD pair, you would have to take these figures into account for both the British and American economies to see which economy is in a stronger position. This will give you an idea of which currency is likely to be the stronger in the coming months and years.
In the short-term prices are obviously less affected by the wider economic picture, but they still have an impact on the markets. This is because there are lots of economic data releases being announced every day.
Another reason why forex trading is quite daunting is because you really need to learn about technical analysis if you want to generate consistent profits. It's not essential of course, but most people I know study charts and various different indicators in order to help them find high probability trades. This form of analysis can really help you become a profitable trader because away from the major data announcements, the price of a particular currency pair will often conform very well to basic technical analysis techniques.
A final reason why people are put off forex trading is simply because there is a danger that you can lose a lot of money. This is particularly true if you use leverage. However my advice would always be to start off trading very small stakes. In fact you should forget about leverage altogether. Just start off with a small amount of capital and enforce a strict stop loss policy to ensure your maximum loss never exceeds more than around 3% of your overall balance.
Forex trading can be a very rewarding profession, as I've found out myself in recent years. If you take the time to learn all the basics and teach yourself how to apply technical analysis, then there is no reason why you cannot come up with a profitable trading system and earn yourself some decent money.
Click here for more information about a forex course that will teach you all the basics of currency trading, and to read a full review of Forex Nitty Gritty.
Print
Email
