When it comes to the proliferation of online scams over the past years, there is no shortage of reference points. Fraudulent job offers, romance scams, pyramid schemes, cryptocurrency scams, 419 scams … but what about forex?
There has been a lot of chatter regarding online forex trading locally. Some of it has been a little disturbing being populated with ponzi schemes and get rich quick schemes around forex trading. Social media is awash with sole proprietors and startups claiming to have amassed immense wealth from forex, going as far as offering seminars on online platforms. A horde of them have been exposed as scammers. Despite the proliferation of scams, it would be unfair to dismiss the entire forex phenomenon as a fraud.
Put simply, the foreign exchange market is the largest financial market in the world, by a huge margin, with over $5 trillion traded. With the objective being exchanging one currency for another. Forex trading is a gigantic industry, and is among the most liquid and fastest-paced markets in the world. Forex, or foreign exchange, trading involves exchanging one currency for another.
To begin with, traders speculate on how the exchange rate will fluctuate (rise or drop). Trading decisions are based on these movements. The currency exchange rate is the rate at which one currency can be exchanged for another. It is always quoted in pairs like the NAD/USD (the Namibian dollar to the US Dollar). Exchange rates fluctuate based on economic factors like inflation, industrial production, economic and geopolitical events. These factors will influence the traders’ decision of whether to buy or sell a currency. FX traders predict whether the exchange rate will rise or drop with the aim to buy a currency at a lower rate and resell it at a higher rate thus making a profit. It is common that FX traders would thus hold on to a certain currency until it is profitable for them to sell such currency. The activity contains buying and selling currencies in different volumes, that are determined by the market. As an example, the market can determine that USD equals X times NAD.
However, it’s important to realize that forex trading is a zero-sum market, meaning that for every winner in a transaction, there is someone who lost an equal amount. That’s because currencies don’t produce profits or pay out dividends as a company would.
Research has shown that building wealth is a long, slow process whereby you invest in a basket of growth assets over an extended period of time. Treating forex as a get quick rich scheme entails doom. In essence, rather than entering with a gambling mentality, a learned mentality will materialize profits.
There is a plethora of junk floating around on social media masquerading as qualified trading advice. If you’re just starting out, make sure to tread carefully. It’s always encouraged to start with small amounts as you’re learning so that any naïve mistake doesn’t wipe your investment. As you gain more experience with time, you will be able to increase position sizes and recognize trends more quickly.
Although there are many legitimate ways to profit from the forex market, there are also pitfalls to be wary of. Without the write education you will not live to tell.
Leave feedback about this