Is Forex Trading Good for Beginners?
You’re a new trader, or you want to become one. Logic dictates that you’ll specialize in one asset category and spread out. You’re interested in Forex but unsure if Forex trading is good for beginners. If that’s close to your situation, our text should help you clear things up.
Forex is a popular way to trade, and there are tons of online brokers that specialize in currency trading. Forex actually stands for foreign exchange, and it’s a market where currencies are exchanged for one another. It’s not a trading-exclusive term, as even changing your dollars into euros for a family trip counts as Forex market participation.
But our text isn’t about your trip to France. Instead, we’re interested in the use of Forex as a trading asset. So let’s dig into the advantages, disadvantages, and alternatives.
Why Beginners Should Trade Forex
Forex has three significant categories; majors, minors, and exotics. When you trade Forex, you always trade a pair of currencies, and you’re hoping for the first to go up or the second to go down.
As you know, major global currency values don’t often change drastically. And the first two categories, majors and minors, only contain major currency pairs. That means they’re relatively stable, and changes within them are incremental.
As such, Forex trading for beginners has two primary advantages. It’s a good learning tool for trading tactics that rely on making a series of marginally profitable trades. Also, the stability of majors and minors means you can’t lose a ton of money at once. There’s a caveat to that, but we’ll mention that in the disadvantages section.
One thing we can tell you right away is that we don’t think Forex is the best asset for beginners. The advantages are nice, but the disadvantages outweigh them and make other assets a more appropriate choice.
The Dangers of Beginner Forex Trading
While it’s still fresh in your memory, we’d like to return to the caveat we mentioned. Namely, while Forex trading doesn’t incur massive losses if you trade responsibly, it’s easy to get carried away.
A lot of brokers offer massive leverage to traders with the promise of quick and significant profits. On top of that, the incremental nature of losses makes them less noticeable, making it easy to lose more than you intend. And since Forex positions are often large in nature, a change of 0.1% can result in hundreds or thousands of your money.
But if you stay aware, you can negate that disadvantage completely. There is, however, one much more significant downside. It’s that such a huge amount of info goes into Forex markets that it’s impossible for beginners to keep up.
Each Forex pair involves two currencies, and if we’re talking about majors and minors, they’re from developed countries. Their values are determined by a massive breadth of factors. It can be their monetary policy, recent deals, the political landscape, the effect of any unions they belong to, etc. Just reading up on Forex-related info takes a lot of time, and estimating how it will impact markets takes even longer. Getting actually good at that is a lengthy and strenuous process.
And that takes us to our last downside, being that you need to be really good at trading to succeed in Forex. Most brokers have a disclaimer stating upwards of 80-something% of clients lose money while trading. That means at least a few percent barely break even, and perhaps around 5% manage to earn a respectable income. Keep in mind that there’s a time investment to trading and that you may earn more by just getting a day job.
Forex trading can be difficult for beginners and may not be suitable for everyone. Trading can be too complex for a beginner to learn, and can easily get carried away. Whether Forex is good or not for you depends on your financial condition, goals, and the investing experience you have as a beginner trader. Beginners must be careful and exercise caution, especially as many Forex traders lose money.
What Are Your Other Options?
One option is not to become a trader but rather an investor. In that case, ETFs and indices will be your assets of choice. Dump your money and wait for cumulative interest to add up. It’s a good and relatively risk-free way to earn money.
Otherwise, trading stocks may be the solution for you. Shares are more volatile than Forex but also require a lot less learning. The main factor will be company performance, and legislation surrounding it is secondary.
Lastly, there’s crypto, which is still a questionable choice for beginners. First, it’s a pool of scammers and coins that aren’t worth your time. However, if you stick with the major coins, you have a nice store of value. As you become more comfortable in crypto trading, you can also branch out and explore lesser-known projects.