When you imagine making a living on the stock market, you probably think of having inside connections, of getting in on the ground floor, of having to know the market like the back of your hand. Essentially, you imagine that it’s too difficult for people without a large investment to make and the right connections to make them. And it’s true. The stock market is a difficult game to get into, and it’s mostly only long-standing “members” who make the real profits.
But if you want to dabble in investing without risking everything you have, a good option is the Forex –or Foreign Exchange– market. The Forex market is becoming a huge destination for casual traders who want to learn to invest or just make a few extra dollars on the market. And while it takes some talent and a lot of knowledge to do it well, the best thing about the Forex market is that anybody with a computer and an internet connection can have instant access to it.
How Forex Trading Works
If you’re not really familiar with financial markets, you probably assume that the stock market is the biggest investment market in the world. It’s not. That prize actually goes to the Forex market. While the stock market does only $25 billion a day or so in trading, the Forex market does $2 trillion. Yep, that’s $2 trillion moving around and changing hands every single day.
On the surface of things, Forex trading is pretty straightforward and can be understood through different Trading Platforms guides that are available online. In fact, you could learn to do it and start trading in about a half-hour (though by doing so you’d be begging to lose every penny). All Forex trading consists of is buying one type of currency and selling another, which is done through a broker via an internet trading platform (almost like a video game). When you trade one currency for another, you do it with the hope that the currency you purchase will increase in value after you buy it. When it does, you make a profit when you sell it. Pretty clear-cut, right?
The only problem, however, is that you generally make only fractions of a penny or small fractions of a dollar (or whatever currency) on each unit of a currency you sell. This means that you need to trade on a large scale in order to make money. Fortunately, you don’t need to have $100,000 lying around in order to make a large investment. Instead, you can use margin trading. With margin trading, you can “purchase” up to $100,000 of a currency without risking more than $1000. When and if you reach $1000 in loss, your account will automatically opt-out or sell. So while you do take heavy risks, you’re the one who controls how far those risks go.
Advantages of Forex Trading
While the stock market is and remains a sort of “boys’ club” for long-time members, the Forex market’s sheer size has opened it up to investors from every walk of life. Anybody with internet access and a bit of extra cash can invest in Forex (though there’s a large amount of risk involved). The wide-open system of Forex trading gives you plenty of advantages over traditional investing, such as:
- Practice trading on a virtual platform until you’re comfortable trading with your own money;
- Trade without directly paying commissions;
- Very low cost per transaction (generally less than 0.1%);
- Make trades without much direct investment (with margin trading, you can risk relatively little capital while maintaining the highest potential profits);
- 24 hours a day trading; and
- Trade instantly without waiting for a buyer or seller (because the market is so huge and is always moving, there’s always a buyer or a seller).
In the end, any investing you do is going to involve some risk– and Forex trading is a higher risk activity than most. But some of those that go forward with caution and do the research do come out on top. While Forex trading isn’t something to be entered into lightly, it sure is going to sound better on your internet dating profile to have “Forex trading” as a hobby instead of “World of Warcraft.” At least you’ll be doing something productive with your computer in your spare time!
Samira Gutoc is the founder and managing editor of Atlas and Co. She is also a content writer, blogger, poet, photographer and an editorial associate.