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Strong Attraction of Online Forex Trading

May 25, 2008
The widespread use of broadband Internet services has transformed forex trading from an activity limited to banks, hedge funds, and investors with deep pockets and good banking relationships, into an activity that almost anyone can undertake from their home or office computer.

Online forex dealing firms now offer the small retail trader free access to trading platforms and live data feeds that just a few years ago would have cost hundreds, even thousands, of dollars a month in fees. This and the prospect of making large returns on investment has lead to an explosion of online forex trading activity. Forex trading accounts can be opened for as little as $250 and free demo accounts are readily available.

Unfortunately, just because it is now easy to participate in forex trading doesn't mean that smaller investors should attempt to trade forex. Starting out with small sums of money almost guarantees that the trader will end up losing that money. A more realistic sum to start trading with is $5,000, not $250. Even then traders who start out with larger amounts of money should take care not to over leverage their positions.

Forex trading is a highly professional undertaking. In order to win you have to know what you are doing and/or be extremely lucky. The small trader who starts trading with limited knowledge is at a tremendous disadvantage as forex trading is a zero sum game and the competition is fierce. After all currency trading is the biggest financial trading medium in the world with trillions of dollars of forex changing hands daily. With so much money up for grabs no wonder the competition is so strong. Successful traders, people like Jim Rogers and George Soros, become very wealthy.

One of the big attractions of forex trading is that large sums of currencies can be controlled with small amounts of money. Leverage of 100 to 1 is easily available. A professional trader would never use that amount of leverage. When you trade forex at 100 to 1 leverage it means that you would double your margin money with only a 1% move in your favor but sadly you would lose 100% of your money with a 1% move against your position.

When you trade at extremely high leverage you reduce the business of forex trading to gambling. You may want to still give it a go using the high leverage that is available but at least be aware that you are gambling using the forex markets to do so. It is better to learn what you are doing and to go for the long haul. Few if any businesses anywhere offer the kinds of returns available to skillful forex traders.
About the Author
Gerald "Taipan" Greene is a retired forex trader and portfolio manager who worked in Asia for over 20 years. The nickname was acquired in Hong Kong and is now used for a number of financial, political, and Internet business related blogs. One of them is at Article Discovery
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