Like any other type of investment, currency trading has its inherent risks and potential for profitability or loss and knowing how to mitigate these risks goes a long way in determining your own currency trading profit or loss. Foreign exchange trading is when you attempt to generate a profit by speculating on the value of one currency compared to another. Foreign currencies can be traded because the value of a currency will fluctuate, or its exchange rate value will change when compared to other currencies.
Like some other forms of trading in financial markets, currency trading may seem complex, abstract and intimidate for beginning traders. However, the underlying activity involved trading one national currency for another is relatively simple. Currency trading used to be the exclusive territory of large market operators, but it is now accessible to the general public and there are many resources available to help beginning traders achieve success.
There is a massive range of income potential when it comes to currency trading. It is quite possible that some people will still need to work another job but manage to pull a little money out of the market each month through currency trading. There are those who can live comfortably on what they make by trading, and there is the small percentage who will make a lot. There is also a large group of want-to-be traders who will fail and never make any money.
Most people come into the markets chasing freedom from their job or a quick road to riches. However, what they don’t know is that they are up against a test of mental strength and their ability to manage themselves in an arena of the currency market. Trading success really is dependent on developing the proper trading habits and continually reinforcing them. However, most traders develop negative trading habits and reinforce those instead. They do this by getting lucky on a few trades they have entered on a gamble by either over-trading or over-leveraging. Once they win on one or more of these gamble-trades, they have reinforced a negative trading habit that is very hard to break.
How profitable is currency trading, generally depends on your trading strategy and on the risks you are willing or are able to take. Currency trading is done on the margin – this means that the size of your trade can be a lot larger than the size of your deposit. In other words, you can trade much more than you have. This can potentially lead to very high profits. Unfortunately, the same also applies to losses. Generally, profits and losses are almost unlimited in the currency market. Mostly, it depends on your risk appetite, your trading strategy, and your level of understanding.