Thursday, June 2, 2016

Risk and Reward Ratio of Currency Trading - Is Forex Trading Worth The Risk?

There are people who seen their currency trading account being wiped off more than thrice while they started trading with different currencies. Yet they still keep turning to high-reward, high-risk foreign exchange market and majority of the people call this as gambling. Mr. Bolduc, a 55 year old bill collector began currency trading in 2003 and after trading stocks and currencies for a number of years, he found it extremely easy to open an account and obtain a charting program which ran pretty quickly. Now he has become one of the rapidly growing retail forex traders throughout the whole world. According to him, there seems to be so much money that can be earned through the forex market.

As per recent reports, forex is the biggest fiscal market in the world which has some $4 trillion traded every day. In fact, the Bank for International Settlements is of the opinion that although the forex market is dominated by the big corporations and banks and the private investment funds, the retail section is one of the fastest growing sections. In the year 2010, daily retail volume was $315 billion, according to Boston-based research firm and this figure is all set to triple by the end of 2018.

Forex market becomes easier than ever to trade

There are different forces which drive the boom, from the sudden rise in the online programs to stock market volatility; everything has made forex market much easier to trade than the other investment vehicles. Some giant companies like Citigroup Inc. have launched online trading platforms[1] which cater towards the smaller account sizes. Yet there are the newbie online platforms like Forex Capital Markets' and Oanda Corp which are gaining enough momentum in the retail industry. They have smaller balance requirements, low fees and tight trading spreads.

All of this comes to us during a time when there's rising volatility in currency markets which are caused by increased debt issues in the Europe and the US and significant signs of extremely slow US economic growth[2]. In recent months, the dollar fell down to a record low level against the Yen of Japan, dropping down by more than 4% on the day it plummeted to its record low level. Within a day of hitting the low, the dollar was back to 7.5% against the Japanese Yen.

The risks of trading the forex market

Every trade, no matter how much sure you are about its result is nothing but a well-informed guess. There's nothing that is extremely certain in the trading market and there are too many external factors which can push the movement of a particular currency. While there are times when the fundamentals can shift the environment of trading, there are other times when there are some unaccountable factors like option barriers, central bank buying, daily exchange rate fixing. Ensure being prepared for the uncertainties by doing a comprehensive market research on the entire scenario.

The rewards of forex trading

What are the rewards of forex trading[3]? Well, the rewards are all unknown. When there is a move in the currency, the move can either be small or big. Financial management is extremely vital in such cases. Referring to the rule which says that you shouldn't let a winner become a loser, you should trade multiple lots. This can easily be done on a way which can be handled with using mini-accounts. In this manner, you can lock in gains and then move your stop to the second lot.

Trading safely - Some tips

  • Limit the forex trade: Experts usually recommend that small investors should not devote more than a few percentage points of their entire portfolio to forex trading and this way they can restrain their potential damage.
  • Choose the right bet size: Amidst the risks that traders should be cautious of, overtrading is the first thing they should take into account. Only after you carefully check the live currency rates[4] you should choose the perfect bet size. Don't trade a position which is too large compared to the size of your account.
  • Set some limits: One way in which you can limit the damage caused is to set a stop-loss order through which you exit a position when a specific price has been hit. Keep guessing and predicting the movement of currencies in order to make a right decision.

Therefore, if you plan to outsmart the forex market and make money, start working with the most appropriate strategies. If you don't think you know them, seek professional help. There are many forex professional companies who offer you enough help[5] on currency trading. Also take into account the risks and rewards before taking the plunge. Also follow the trends and don't move beyond them.

References

  1. ^ online trading platforms (www.investorguide.com)
  2. ^ slow US economic growth (finance.yahoo.com)
  3. ^ rewards of forex trading (www.oanda.com )
  4. ^ check the live currency rates (www.easymarkets.com)
  5. ^ help (www.investopedia.com)

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