Forex trading is often marketed as an easy way to make money from home. The reality is very different. It can be a useful skill and an interesting market, but most retail traders lose money. This article gives you a balanced view so you can decide whether it is right for you.
Risk warning: Trading forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. You could lose money rapidly due to leverage. Past performance is not an indication of future results. This article is for education only and is not investment advice.
The potential advantages
- Highly liquid market: major currency pairs trade in very large volumes, so prices are usually quoted with tight spreads.
- Open 24 hours a day from Monday to Friday, which suits people who can only trade outside work hours.
- Low starting amounts: many brokers let you open an account with a small deposit, although trading with too little money has its own problems.
- Trade in both directions: you can aim to profit from a currency rising or falling.
- Lots of free education and demo accounts to practise without risking real money.
The risks and downsides
- Leverage: it magnifies losses as well as gains, and can wipe out an account quickly. See Can you lose more than you invest in forex?.
- Most retail traders lose money: brokers regulated in the UK and EU must publish the percentage of their retail CFD accounts that lose money, and it is usually well over half.
- Costs add up: spreads, commissions and overnight fees reduce returns, especially for frequent traders.
- Emotional pressure: fear and greed lead to impulsive decisions. Read Forex trading psychology.
- Scams: unregulated brokers, “signal” sellers and get-rich-quick schemes target beginners.
Who forex trading may suit
Forex trading may suit people who:
- Have money they can genuinely afford to lose, after covering bills, savings and emergencies.
- Are willing to spend months learning and practising before expecting results.
- Can follow strict rules and accept losses calmly.
- See trading as a skill to develop, not as a quick way to earn income.
Who should probably avoid it
- Anyone who needs the money for living costs or debt repayments.
- People looking for guaranteed or fast returns.
- Anyone who finds it hard to stick to rules when emotions run high.
Questions to ask yourself before you start
- How much could I lose without it affecting my life?
- Do I understand leverage, margin and stop-losses?
- Have I practised on a demo account for at least a few months?
- Is my broker properly regulated in my country?
- Do I have a written trading plan?
Alternatives to consider
If you want exposure to the markets with lower risk, unleveraged investments such as diversified funds may be more suitable for many people. If you are still interested in currencies, our guide to ways to invest in forex compares the options.
Summary
Forex trading is neither “good” nor “bad” in itself. It is a high-risk activity that can suit disciplined people who understand the risks and only trade with money they can afford to lose. If you decide to try it, start with education, a demo account and strict risk management. Our step-by-step guide on how to invest in forex is a good place to begin.
Risk warning: Trading forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. You could lose money rapidly due to leverage. Past performance is not an indication of future results. This article is for education only and is not investment advice.