Forex trading is very popular these days. With so many online forex brokers available and governments legalizing them, people are getting easy access to this wonderful trade sector filled with endless possibilities. You may have seen people investing in them and becoming rich overnight. On the other hand, you will see people who have lost it all because of forex trading. Why are there such different images in the same trade sector? Is forex trading easy or is it hard? Let’s find out!
Forex Trading is very difficult
Honestly speaking, Forex trading is very hard. It may seem very easy, like buying a currency pair, waiting for its price to go up, and selling it. But there is more to it than just simply buying and selling. There are many factors, forces that actively affect the forex market. There are endless scenarios that can make the market dramatically shift its direction. The players of the forex market, the buyers, and the suppliers also put a significant effect on the market.
Then there are the economical and technical factors that can cause price movements. All these make forex trading very difficult. Now, in this age of technology, information is quickly disseminated. This quick spread of information has added another level of difficulty in forex trading.
Economical factors are associated with country-to-country relations. These factors are random. Surprise events can significantly affect the forex market and make it more predictable.
For example, you have made a 1-year long plan with the US Dollar and Chinese Renminbi currency pair. Four months after opening your position with this currency pair, the US government has imposed a ban on Chinese products. This will make the currency pair lose its value dramatically. As a result, your plan with the currency pair will fail, and if you don’t withdraw in time, you will have to incur heavy losses.
Another economic crisis could be terrorism. Suppose you are trading with the US Dollar and UK Pound. The US got attacked by terrorists out of the blue. This will cause the dollar to lose its value against Pounds.
The worst part about economic factors is that they are unpredictable. This makes forex trading very hard. If you can somehow keep up with all these economic changes, forex trading will be relatively easy for you. Then you have to deal with the technical factors.
Technical factors are associated with the forex market itself. It also includes indicators, leverages, and more. There are many indicators for forex trading. Some help to identify trends, some to calculate the strength of the force, and some to point out support and resistance barriers. They may sound very easy to understand, but using all of them at once will put you in big trouble. On the other hand, using only one indicator will not be that helpful. Traders often find it very difficult to pick the right indicator at the right moment.
Analysis of data
Sometimes, the technical analysis makes it very difficult to predict the future outcome. Technical analysis means comparing present market data with historical data to predict the next market movements. If the market was only driven by technical forces, this would work all the time. But unfortunately, the market has many unpredictable economic factors.
Often, technical analysis data gives opposite results to economic analysis. If you make your move based on just the technical analysis, you may end up in huge losses due to economical effects. Combining the results of economic and technical analysis can be difficult. That is why new forex traders get disappointed and quit forex trading.
Leverage and greed
Another thing that makes forex trading difficult is the leverage ratio. Leverage was originally intended to help traders with bad credit. Leverage allows you to trade with $1000 or bigger, or with just $10. This may seem safe, but it’s not because the loss may be too big; you will have to pay for all that with real cash.
Some traders have lost all of their belongings for leverage. Leverage should be taken with caution. You must speculate all factors to understand the risk and benefits you are getting. People often give in to greed and take big leverages without doing any research. This leads them to trouble.
Simply speaking, forex trading is very difficult. Economical, technical factors, greed, and unpredictable events all make forex trading a battleground, and only the smart ones can survive this battle.