Money Brain

"Forex trading is a waste of time" Is it though?

“Is forex trading nothing but a waste of time?” is the frequently asked question of the present generation of traders. It is not an objective question to be replied in simply “yes” or “no” gestures. It involves subjectivity in itself, instead. Forex trading is a complex riddle that is hard to crack, or at least not that easy to be deciphered with only a few weeks' experience. So before asking this question, you really need to answer a series of 10 questions too as below:

  1. Why are you asking this question?
  2. Do you want to hit success overnight?
  3. Do you have an action plan for your trades?
  4. Are you a fresh forex loser?
  5. Have you lost your shirts in forex trading?
  6. Are you just about to invest in the forex market?
  7. Are you just standing on the beach of the forex ocean and will soon dive deep into it?
  8. Are you confused with the failure stories of other forex investors?
  9. Whom are you asking this question?
  10. Have the forex experts' tips not worked for you?

Your answer to all these questions will make it easier for you to reach a clear conclusion.

The Dilemma of Beginner Forex Traders

Those who are just beginners at forex trading are always confused with the unstable behavior and unpredictable trends of the forex market. They would be either demotivated by the naysayers who tend to mourn their failures and lament their bad luck or else they would start daydreaming as they come across to those immature traders who keep on overexaggerating the utility of forex trading just because of finding a by chance single-sudden-magical success in the initial phase of their forex journey.

The naysayers and fresh losers would keep the beginners away from investing their time and money in the silly forex business. They would frighten them of getting their capital or assets drowned too soon if they invest here. However, they would tell nothing or very little about the shortcomings of their forex trading plan or strategy. The only thing they magnify is their failure. On contrary, the over-exaggerators would just glorify their unexpected premature success and will have no clear idea about safe trading to share with the beginners at all.

So all you need is to turn a deaf ear to what they say and look for some genuine traders who have been working in the industry for a long time with a varied experience of failures and success too.

Working Principle of Forex Trading 

Before indulging in the debate of whether forex trading is the total waste of time or not, we need to know about the working principle that it follows, first. Forex trading is essentially a trade of currencies at an international exchange with no physical trading venue. Rather, it operates through an interbank networking system with electronic deals. The value of a certain currency is regulated through various parameters like floating rate or fixed rate. The floating rate of a certain currency purely relies on the supply-and-demand chain and the circumstantial realities (challenges/opportunities) of that specific country. In the case of fixed-rate, the state-owned bank of a country sets a fixed rate of their currency against some standard currency like USD.

Pros and Cons of Forex Trading

Before jumping hastily to any conclusion, we must look into the merits and demerits of forex trading. Like all the other businesses, forex trading has its own benefits and drawbacks. One needs to be clever enough to wisely calculate the pros and cons of the forex business before investing in the market or neglecting it altogether.

Pros 

  • The market is easily accessible from anywhere at anytime 24/7/365.
  • Negligible or no commission/regulatory fee charged, but in the form of “spread”.
  • Investors with a low budget can also get benefits from this marketplace.
  • Normally, the forex market remains highly liquid.
  • An investor can frequently alter his trading positions which is not quite easy in the physical markets.
  • Constant learning.
  • Builds an ability in the new investors to take risks.

Cons

  • The biggest whales of the forex industry are said to have complete control of the market, such as central banks.
  • The price determination process is a bit complicated.
  • Relatively more risky than equity markets.
  • Hard to rely on any dealer or broker.

However, a business-minded fellow should overlook the trivial and petty sort of shortcomings with this business idea as there can be no perfect business model with zero drawbacks. In fact, we can’t change the things but yes, we can adjust ourselves to take risks and take up the challenges in order to see the rewards.

Can You Learn Forex Trading without Real Money?

Is it possible to master the skill of currency trade before throwing your money into this well of unpredictable trade? The answer is, fortunately, yes. Of course, many of the forex trading platforms out there are focused on facilitating the newbie investors with a demo account. The demo account would help the young investors in capturing the complete picture and working mechanism of the forex market.

In fact, every forex trading platform has its own features, however, the maximum of the features are roughly common to all of them. For instance, you will see every platform featuring forex quotes, prices, charts, news feeds, technical analysis tools, drawing tools, trade history, and functionality for buying and selling currencies. Nonetheless, the demo accounts on a certain platform are normally free and you can easily try your strategies to develop a better understanding of the market by analysing the behaviour and pattern of various currency pairs on your trial trades.

Grasp the Fundamental Concepts of the Forex Trading

Using a demo account, you can familiarize yourself with the basic functionality of the trading platform and the working mechanism of the trade itself. A new user must grasp the concepts of the limit order, stop order, lot size, spread when to enter or exit the market, etc. It will make the real-time trading activity much easier for you at the time of actual trade.

Moreover, you need to go crazy and wild in using the demo account at its full potential. You must try various trade options shuffling the trading approaches from spot trading to forwards trade to future trade to swap trade and options trade. Know everything about financial derivatives like Over-the-Counter Derivatives or Exchange-Traded Derivatives. Similarly, deeply study the spreads or commission rates and interest rates in various trading positions.

Experiment Randomly to Devise an Organised Strategy

After getting the basic know-how of the trading platform as well as the fundamentals of the currency trade, you need to experiment with various currency pairs by playing with them in a serious manner as if it were your actual account, though it is not. You must check the behavior of the market by constantly shuffling your positions. Analyze the patterns and track record of several certain currencies. 

You may assess the market through both approaches; trading with a long-term perspective or short-term perspective. It would help you better assess the mysterious relationship between leverage and the expected profits. Eventually, you will be able to carve out a trading strategy to stay at the minimal risk position to gain huge profits. Using the demo trading account, you must prepare yourself on emotional grounds as well. The point is you would be mentally prepared for facing any big loss or digesting any unexpected yet magnanimous success in the trade. It is because nothing is permanent as your success or failure at trading can be something of unusual importance to you but pretty much normal for the forex trading community. 

Hence, your concern about risking your real money in the forex business has been truly excluded. Nonetheless, it is also true that you can learn better only in the real-time situation with real money. However, there is always an option to learn the trading without investing your real money in the trade.

How can backtesting be helpful in forex trading?

Since we have discussed how can we learn the trading science from others’ (not our) money, now we are going to know how can we learn from others' experiences? Backtesting is an assessment strategy where you visualize the present forex trading market in the mirror of the past and predict the future situations of the forex market. In fact, you look for the historical background and track record of a certain currency pair in various situations and analyze its behavioral patterns under certain conditions. Thus you get a rough schema about the behavior of any currency pair under consideration.

However, Backtesting is not written in stone to get sure success in forex trading. On contrary, if you solely rely on backtesting and don’t explore the other ways of market assessment then it can be proved as writing on the wall as well. So it is advisable not to restrict yourself to a single analysis approach. It is because these are not only the quotes that keep on changing constantly, but their defining criteria are also in a constant transition phase because of everchanging geopolitical interests and crucial cross-border developments. Therefore, learning with your own experience can be more relevant and authentic than Backtesting. Nonetheless, Backtesting is quite significant to save you from risking your real money in the very beginning of your forex journey.

Investment of Time is more Important than Money in Forex Market

It is a common misconception that is normally found amongst young investors that lofty investments are necessary for sure profit. It can be true to a greater extent, but in no way does it say that less investment can’t drive the bigger profit. We need to look at the picture from a different angle which says it is not the money but the experience which has more impact on your success than your investment. 

It implies that you need to be consistent and regular with your efforts in the forex market. Make unending attempts, meet successive failures, take unforgettable lessons, fall badly at your feet and stand remarkably again to play wiser than the earlier.

Trade Discipline has got the Keys to Unlock the Doors of Success

Similarly, your temperament and belief matter more than your investment in forex trading. If you are investing some huge amount on a certain currency pair but you aren’t confident enough about the move you have just executed then you must not expect the same as what should be expected. Moreover, if you lack patience after throwing money on some tricky trade then you are really not going to be a successful forex trader. In that case, you really need to seek trade discipline to tame your emotions attached to the trade proceedings.

Do Investments in Forex Simply Means Drowning your Money in a well?

A large number of people think that forex trading platforms are the best places where you can waste your money with no end. However, it is not the case. Instead, this statement is just the other name of ignorance or not having proper knowledge and comprehensive understanding of the philosophy on which the forex market works. In that way, you can also say that running a gas station indirectly means seeing it burning soon in its own flames.

In fact, all you need is the confidence and patience to analyse the market well and throw your money on the currency pair which perfectly appeals to your reasoning faculty of the mind. Instead of lamenting your failures and blaming this business idea, you need to fix the issues in your behavior and mindset towards the forex trading market.

Guidelines for Beginner

Before concluding the post, it is wise to discuss some of the key guidelines that can assist the new forex traders to secure their positions as successful traders in this industry. Therefore, you need to go through these guidelines before entering the market or at least before hitting the “buy” or Sell” buttons.

Carve out a Logical Game-Plan

You can imagine how aggressive can be the forex market when you enter it without a solid strategy. So you need to be quite clear about your trading approach and positions, whether you are going with a long-term approach or a short-term approach. You need to confirm how much dip is bearable for you and how much profit is enough for you. Besides, never forget to set your goals as they are the prime source of your motivation.

Make an Extensive Research

Before spending your hard-earned money on any currency pair, do extensive research on that specific pair in relation to the rest of the market, past record, present circumstances and future trends. Before investing in the forex market, you need to clearly differentiate between whether you are trading or just gambling.

Stay Patient & Confident

Mentioning it at the third position is totally dishonest by the way, as it must be the top priority of every trader not to leave both these values at any point in his forex trading journey. There is no exaggeration in saying that patience and confidence are the chief ingredients of your success recipe in the forex market.

What to avoid:
  • Don’t make your strategy a hotchpotch of various conflicting action plans.
  • Don’t put all of your eggs in one basket.
  • Don’t let your fear overwhelm you.
  • Don’t be too greedy because 'A Bird in the Hand is Worth Two in the Bush'.

Final Verdict

The final answer to the question that whether forex trading is worth investing your money or a total waste of your time is that it is worth investing money. However, you need to analyse the market well before becoming a part of that market. Moreover, take baby steps in the beginning while climbing the ladder of success and never leave patience and confidence at any step of this success ladder. Hope you’ll not take it for snake and ladder play, but you need to be aware of the snakes on your way. It is because forex is all about knowing the game and the players too. So keep a sharp eye on everything if you really need to dominate the market.

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