Foreign exchange is abbreviated as forex, and currencies of different countries are traded in the forex market. Every time foreign currency is traded a forex transaction takes place. For example, a person who goes overseas and exchanges US dollars for the local currency in the country is making a forex transaction. Since extremely sophisticated software for forex trading is now available, it is easier for individual traders to compete with larger firms and win forex every time.
When an overseas traveler purchases the local currency he is not interested in making a profit from this transaction, he only wishes to have enough money for spending on his trip. Usually, if there is any money left over at the end of the trip, it will be converted back to dollars at the booth for foreign exchange at the airport. This is a complete forex transaction.
In a very similar manner, forex traders would like to purchase a particular currency using dollars. Then within a short time period, they would convert it back to dollars, hopefully making a profit in the short term. A trader who is bearish about a particular currency may decide that he will short the currency. The trader will bet that the currency that he is targeting will decline in value compared to the main currency usually US dollars. Thus, forex trading is exciting and can also be extremely profitable.
Win forex every time is not possible. The top-performing winning rates, using equal stop loss and take profit targets, are around 55% in prop trading companies. Because spreads, these profits are even smaller (several percent traders lose because of spreads).
Beginners traders often think that trading is easy and if they have “perfect strategy” they can double account every month. This is not true. There is no perfect strategy or system that can bring fortune or a high sharp ratio, profit factor, or winning rate. Thousands of quantitative experts looking every day for new systems, test systems, create models, use machine learning, and various tools to develop a good system as they can.
On the other hand, smart retail traders risk 1% per trade or even less. Drawdown can blow the live trading account very easily.
As we can see in Table if the trader loses 1% he can recover easily with 1% next time. But if the trader loses 50%, he needs 100% to recover the portfolio.
Additionally, there are many lifestyle-related benefits for forex trading. Many people are interested in working at home since they do not have to waste time traveling to their workplace. Unfortunately for them a majority of these work at home programs require large investments and offer low income. Forex traders are free to work from their home or any other place they wish. Many of the largest forex markets have existed for centuries. The different forex markets in various countries are legitimate since some of the most reputed institutional investors like banks and retail traders are using them. Proof of the massive profits generated by some of the traders is available for those who wish to check.
Since the forex trader can trade in all the forex markets worldwide, he can trade all 24 hours of the day. Traders who prefer to trade at night can do so till early in the morning. Early birds can start their forex trading early in the morning much before stock markets in their country will open. Thus the forex traders are free to finalize a schedule that is convenient for them. They can easily trade from any place with internet access. So if a forex trader is successful, he usually has a lifestyle that most people envy.
Forex traders can have even more free time by using automated software incorporating the latest technology. The software programs will help in the automated execution of forex trades. The trader only has to define the right trading strategy and risk levels acceptable, after which the trading robots will complete the trades. The trader does not have to sit in front of the computer monitor for many hours daily.
Mistakes of forex traders
Many new forex traders make the mistake of trying to randomly predict the fluctuations in the value of different currencies without taking help from the forex software available. They are usually not aware that in the forex market, the value of currencies will fluctuate rapidly and these fluctuations depend on a large number of factors. Traders who try to predict the variations manually often find that they made a mistake. Luckily for these traders, there are trading programs that are automated and sophisticated which they can use to compete with other forex traders.
But automated software, expert advisors can not bring high profit as well. Expert advisors make losses as well as humans but emotions do not affect the robot’s decisions.
Many forex traders are making mistakes and taking incorrect decisions, resulting in losses because they let their emotions affect their decisions. This is a major problem for new forex traders since they are inexperienced. Hence, increasingly traders are preferring to use robots since emotions do not affect the robot’s forex trades. The automated robots for forex trading will execute their trades based on the logic programmed into them and the forex market numbers which are input. Traders who are trying to make a profit by trading in forex using a combination of their guesswork and intuition usually make a much lower profit or a loss.