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If you are like most people, you have probably have seen online ads for forex trading, with marketers claiming that it is one of the easiest ways to make money online. But is it the truth? And the answer is this:
That depends.
That really depends on whether or not you have mastered the tools necessary to make a lot of money through forex trading. And therein lies the bitter or sweet pill.
To understand what we mean, you have to understand the way forex trading works.
Just like in any type of trading transaction, you earn money by buying low and selling high. The commodity in forex, though, is not a physical one but rather a virtual one – the price of a currency pair, or the exchange rate of the US dollar against the Euro, for example. The price is always expressed as a currency pair, like EUR/USD.
If you follow the currency markets, you will see that there is a baseline exchange rate between two currency at any given time. This is purposeful and is actually set by trans-national authorities governing the different currencies across the world. However, on any given day, the exchange rate increases in small increments, typically less than one cent, and is expressed in pips.
In order to make a decent amount of money with forex trading, you need to be able to predict when the price of a currency pair is going to go down and sell it at the right time when the price is high. This practice is called timing the markets. Unfortunately for you, the tool you need to predict a price movement is very, very technical. You have to able to identify trend on a chart full of candlesticks. What this means is that there is a steep learning curve to climb if you want to earn money.
You got to be a Forex Expert
Make no mistake about it, there is a lot of money to be made in the forex markets, however, and this is the big BUT, the ones that are making a lot of money have been at it for many, many years. If you are totally new, you could end up losing thousands of dollars if you don’t learn to identify trends and executing trends using a demo account.
Aside from being too technical, another cause of concern in forex trading is that you trade on leverage. We said before that the price of a currency pair moves only in small increments. What most traders do is to trade on leverage. So, if they trade with $250 from their own credit card, they use the leverage provided by the broker to trade $1,000. This is a double-edged sword that can earn a lot of money when done right and could also make you lose a lot of money.
All in all, forex trading is not the easiest way of making money online.It is not for the faint-hearted or those people who do not like to lose money.