Is Forex A Good Investment For You?
Over the years, forex has garnered a lot of public attention because of the investment opportunities it provides for investors.
But the question is, why is this so?
Well, forex trading involves the buying and selling of currencies with the aim of making profits from the fluctuation of their exchange rates.
The reason for its popularity in the investment world is that, unlike typical stocks where profits are only made during an uptrend, in forex, profits can be made both when the market is in an uptrend or in a downtrend.
Uptrend
Downtrend
Together with this unique feature of the forex market, there are leverage opportunities being offered which gives the investor the ability to control more they have in their brokerage account.
Also, the forex market is available to everyone ranging from a newbie who knows absolutely nothing about the market, to an expert who is certified and well-versed about the forex market.
Now, even though you see these benefits of the forex market, you shouldn’t immediately conclude that it is a good investment.
So, what factors do you need to consider before concluding if forex is a good investment opportunity for you?
Characteristics Of A Good Investment
Let’s consider briefly four (4) characteristics of a good investment
- Expectation Of A Return: The goal of every investment is to see some reasonable growth over time right? Yes.
So, when contemplating whether Forex is a good investment or not you need to answer this question-
“Does the forex market offer a reasonable return over time?”
If after your research, you can confidently answer YES (which of course it does), then Forex has ticked one of the four criteria discussed in this article.
2. Inherent Risk: With every investment or business comes a level of risk right? Yes.
Also, the potential for reward is tied to the level of risk in any business.
But with every good investment and business, the risk can be controlled by the person who’s in charge.
The question now is, “Can you control your risk at any time in the forex market?”
The short answer for this is, Yes. This is why, risk management is being taught all the time in the Forex Industry.
Now that Forex has ticked two boxes out of the four characteristics of a good investment, can we then make our conclusion? NO!
We must diligently scrutinize Forex by the four criteria discussed in this article.
Are you ready for the next two that will be discussed?
If so, let’s continue.
3. Liquidity: Liquidity is simply the amount of money flowing in the market which allows investors to convert their investments quickly into cash.
Now again, quiz question: “Does the Forex market have enough liquidity?”
According to the Corporate Finance Institute, about $5 trillion is traded daily in the market.
This immediately ticks this box because it is definitely one of the largest markets in the world.
So, yes Forex has enough liquidity.
4. Stability Of Income: This is another major characteristic of a good investment. The source of income must be stable and consistent.
Here, the forex market actually fits in perfectly only when managed properly.
Now that we have gone through these characteristics, it is safe to say, that the forex market is actually a good investment tool.
The million-dollar question now is, how do you make forex a good investment?
Making Forex A Good Investment.
So, if you’re looking to make forex a good investment, it’s important to approach it like a business.
Just like any business, it requires hard work, patience, a solid strategy, and realistic short-term and long-term goals.
It’s important to understand that not every season will be profitable, and it’s necessary to accept the losses that come with forex trading.
The ultimate goal is to ensure that your profits outweigh your losses.
If you treat forex trading correctly, it can be a very rewarding venture.
If you’re interested in learning about common mistakes made by traders and how to avoid them, I recommend reading this article.
For a comprehensive guide on whether forex is a good investment or not, you can also check out this article.
