The trading of stocks and currencies was once limited only to professional organisations and stockbrokers, hidden behind the walls of high-value businesses and banking institutions. But access to trading has recently been democratised, with a plethora of platforms and mobile apps now available to help even amateur traders leverage everything from cryptocurrencies to oil and gold to create a new stream of income.
It’s easy to see why the space has seen such a surge in popularity over recent years, and the number of individuals interested in growing their wealth on their own terms is at an all-time high.
One of the most popular ways to do just that has emerged as Forex trading, which allows traders to leverage the foreign exchange market in order to make a profit – but far from being a pursuit for the clueless, it requires knowledge, skill and experience in order to turn it to your advantage.
Here’s all you need to know if you’re interested in getting started in the Forex space this year.
What exactly is Forex?
Forex is short for foreign exchange, referring to the market on which global currencies are traded for one another. These markets give rise to exchange rates, or the ratios that define value relationships between different currencies.
Currency values change as a result of domestic and international shifts, whether economically or governmentally. A key example for this is the fall of the pound sterling earlier in the year, as a result of rising inflation caused, for the most part, by surging energy prices. The pound lost its spending power relative to the dollar, so that exchanging pounds for dollars will now return you fewer dollars than before the pound’s value tumbled.
The rise and rise of retail trading
Forex markets were previously only engaged with on a retail basis by consumers obtaining currency for trips abroad. Larger-scale trading and investments were traditionally undertaken by wealth management businesses, high-value investors and businesses with the necessary structure to engage directly with brokers and markets – but recently, developments in fintech have levelled the playing field.
The average consumer can now engage with stock markets, exchanges and Forex markets around the world via retail trading apps, which have seen an exponential increase in popularity in the last few years. Individuals have been empowered to make their own financial decisions in the markets, and to potentially create a new income stream in the process.
Making money with Forex
For newer entrants to the Forex markets, the costs involved can be somewhat prohibitive. In order to make a reasonable profit on the marginal changes to currency values, large sums of currency need to be bought outright.
There are alternative options, though; for example, spread betting enables investors to benefit from market movements without buying fully into assets.
But what can an investor stand to gain from the Forex market? The answer differs greatly depending on the approach of the investor in question, but turning Forex trading into a full-time earner requires a specific approach and a robust, tried-and-tested strategy. Profits will differ from trade to trade, but professional traders seek to achieve a monthly average of five to 15 percent profit on trades – however, it takes a great deal of skill and experience to reach these levels, and you could stand to lose out in the shorter term while you’re learning the ropes.
Naturally, the monetary value of these possible gains in the longer term depends on what you as an investor put in. Salaried Forex traders and stockbrokers might earn up to £125,000 including commission, while the sky’s the limit for personal trading. It is also worth recognising the high risk that can come with high-value single trades. The key to longevity in trading is to spread the risk, by diversifying your trades so as not to lose too much in one place.
Disclaimer: Investing money carries risk, do so at your own risk and we advise people to never invest more money than they can afford to lose and to seek professional advice before doing so.
