Why Forex is or isn’t for you

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So, you might like the idea of being a Forex trader, but it is not right for everyone.

Back in 2016 the UK’s Financial Services regulator, the FCA, conducted a review of retail trading – not just Forex, but all types including CFD trading and binary options – and found 82% of retail traders lost money. Trading is a zero-sum game so there are going to be winners and losers but this ratio led us to two conclusions:

This underscores the importance of working out if Forex is right for you…before you consider risking your money on it.
It means the 18% balance must either breakeven or be profitable – about 1 in 5.
We’ve pulled together the reasons traders should and shouldn’t be trading Forex for. All aspiring Forex traders should be asking themselves their reasons for getting into Forex trading before they get started.

If you can honestly say its for the right reasons, and not the wrong reasons you’ll have a much greater chance of making a success of it, of being in the 1 in 5 group of traders, over the long term.

Learn more, take our premium course: Trading for Beginners
5 reasons why you shouldn’t trade Forex
#1 You trade with money you can’t afford to lose
Because the market can be volatile, there is always the risk of losing money when trading a currency pair.
In addition to the inherent risk linked to trading, with Forex trading you need to add margin trading and leverage, which means that you can trade large amounts with little initial capital.

So, this high level of risk means that you need to be sure that you do not use money that you need to live on – it sounds an odd thing to say, but make sure you always trade with money you can afford to lose!

#2 You don’t know what you’re doing
Before even considering trading, you need to know the basics of the markets, what influences them, and how trading works.
… you need to have a trading strategy that suits your trading styleAnother important aspect is you need to have a trading strategy that suits your trading style, with strict money management and risk management rules that govern how you allocate your funds to trades.
If you have no trading experience, and you do not know how markets work and relate to each other, Forex trading might not be right for you – at least not yet.

Must-reads:

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Trading Psychology: How to Control Emotions While Trading
#3 You can’t handle when you’re wrong, or when you’re losing
When making trading decisions, you can be right and make money, but you can be wrong and lose money.
That’s fine – as long as your profits are higher than your losses. Losing trades are part of the trading game – you need to be prepared for this and not take it personally!

In Forex trading, you need to quickly recognise when you’re wrong, and close losing trades as early as possible. It’s important to develop your ability to accept your losses and learn from your trading experience.

But do remember, it’s ok to be wrong – you can’t be right 100% of the time in every single trade you execute. And if you can’t handle losing, you won’t be able to be profitable in the long run.

Read: The Dangers of Forex Trading Revealed

#4 You’re risk-averse
Fast-changing market conditions, high volatility, and leverage can make Forex trading a high-risk activity.
You can make huge returns in the FX market, but these kinds of returns do not come without risks, especially when using leverage.

So, if you’re generally a risk-averse person, Forex trading is not going to fit your personality.

#5 You don’t have time
There are several trading styles you can use when trading currencies, each requiring a certain amount of time in front of the screens.

For example, you can use a trend following method, or position trading strategy, which will require less time than short term trades, like scalping or day trading.

Keep in mind that learning about trading, the Forex market and how to develop the right trading plan takes time. You’d better be sure you have time to dedicate to this activity before starting to trade in currency pairs.

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