Foreign exchange market is the most volatile financial market. It is a decentralised market with no intermediary. But what is more interesting about the market is traders can invest in it with fewer funds.
That’s the reason millions of traders invest in currencies daily. However, traders have the question, will forex make them rich? To understand that, let’s get into the aspects of the market in brief.
Forex Market
When we hear that forex will make you rich, the instant reaction is no. How can a market without effort, knowledge or skill help you earn. Besides, the forex market has a low success rate, only 5 to 10 per cent of traders in millions succeed in earning good returns.
The market can make you rich if one is a hedge fund having deep pockets. Or a trader with unusual skills to trade currencies.
Forex trading is not a simple straight road but has many roadblocks to handle. Traders have to be prepared to manage the market fluctuations and have profits. One cannot directly earn profits, they first face loss and various market changes and then enjoy the profits.
Traders have to walk a long way to be efficient forex trader. The market does not guarantee profits but needs one to be advanced in the skills to be able to make profits.
Below are the factors forex traders can consider or keep a check on to become rich:
Unexpected Events
The Forex market is volatile, and changes keep taking place. A trader needs to be ready for unexpected events to make efficient trading decisions. Currency is something which is impacted by economical, social and political things.
The market is full of it, and one has to be ready if they want to earn from the market.
For example, recently the Swiss National Bank abandoned the Swiss franc’s capital of 1.20 against the euro. It was an unexpected event as it has been part of it for three years.
As a result, the Swiss bank value increased in the market by 41% against the euro for the day.
The surprise move of the bank brought a change. Traders have to be ready for such changes and should be able to manage the situation.
Leverage
Leverage in the forex market is a common thing. Many traders use leverage in hope to open big positions and earn more.However, excessive use of leverage can make it worse.
For becoming rich with forex trading, traders have to use leverage in an appropriate manner. It can magnify the gains and even the loss.
For example, a trader investing in EUR/USD has a leverage ratio of 1:200. Thus, doubling the position in the market. But the value of EUR/USD does not improve much and has shown a change of 10% that too downwards.
Thus, the trader loses the profit, investment and has to pay double to the broker for using leverage. It needs to be used carefully for better results.
Risk and Reward Ratio
Traders of the forex market that are not active have their losses small and gains more with forex trading. It is when their call for the trade is correct. But in trading for retail traders it works opposite.
They make small profits on various positions but they also hold the position for long to incur loss as well. It results in a more substantial loss than their initial investment.
Currency Volatility
Forex market is highly volatile. When there is a sudden change in the market prices of currency move up and down. The volatility of the market makes it difficult to trade and earn.
Traders have to be ready for such changes. Also, they can use various tools to predict the market and make best decisions to have profits.
Fraud and Market Manipulation
Forex market is also prone to frauds and manipulations frequently. Traders have to be alert to make the best of the investments. To avoid such instances traders can learn about the fraud types, do not trust any party online or click on unknown links.
Taking precautions can make forex trading more secure.
Conclusion
Forex market has the ability to make traders earn but the road to it is difficult. Traders can take necessary precautions to make the best of the trade. They can be alert about unexpected events, excess use of leverage or have proper risk and reward ratio.
Other than this currency volatility and frauds can also be taken care of for good investments and earnings.
