Forex Trading: The Perfect Business
A business can be simply defined as an activity that is performed for profit. The main difference between carrying on a business and a hobby is that a business has an expectation of profit, is run in a systematic, continuous and regular manner, involves the calculation of costs and risks involved, and involves making projections of revenues and earnings. Similarly, Forex trading is a business as the main objective of most traders is to generate profit from the market. In fact, Forex trading can be regarded as the perfect business for anyone who are serious about it. Here's ten reasons why.
1. THE ABILITY TO START SMALL
You do not need to have a lot of money to get this business underway. A mini trading account can simply be opened for as little as $250! For a standard account, a minimum of about $2,500 is all that is needed. Just compare this with the tens of thousands of dollars needed to start a business.
2. LITTLE TIME COMMITMENT
Any traditional business may require 8 to 12 hours of hard work per day. In Forex trading, depending on the trading strategies being employed, the time commitment is much less. Most successful Forex traders spend no more than 2 to 3 hours per day trading in the market. Although the Forex market is a 24-hour market, there are lots of strategies with which good trading opportunities can be identified without spending extended periods of time in front of the computer. In fact, many successful traders started trading while keeping their day jobs and yet still making lots of profits from the Forex market.
3. FAST RESULTS
A traditional business may usually take months or even years to start yielding results. In the business of Forex trading, profits can be seen in just a short period of time. Once proven and effective trading strategies are being consistently applied and with proper money management principles, trading profits would be generated while the skills of profiting from this market would also increase.
4. NO OVERHEADS AND STUFF
There will be no hassle of dealing with staff turnover, office politics, office rental, inventory and tons of other overheads in a typical business. Forex trading simply requires a computer with a decent Internet connection. Trading can even be done on a smartphone making it extremely convenient and portable.
5. LIQUIDITY
The Forex market is the largest financial market in the world, with the equivalent of more than $3 trillion being traded on a daily basis, while the volume of the stock markets is only around $500 billion. In fact, the Forex market is larger than the stocks, bonds and futures markets combined! A highly liquid market like this allows traders to enter and exit the market very easily, with the market not being able to be manipulated by any individual. This means that a level playing field is created for retail traders to profit from.
6. VOLATILITY
Due to its downright liquidity, the Forex market is extremely volatile, presenting numerous trading opportunities to market participants. High volatility would result in frequent powerful trends that can be captured with the right strategies. The high volatility in the Forex market allows the most profits to be made from powerful trends compared to trading stocks, options and futures.
7. LEVERAGE
Thanks to the power of leverage, the returns generated from trading in the Forex market far surpass those in traditional investments. Although leverage also causes many untrained traders to lose money very quickly, as long as systematic risk control strategies are observed with discipline, leverage can work for, instead of against you.
8. LACK OF PHYSICAL EXCHANGE
The lack of a physical exchange in the Forex market enables it to operate on a 24-hour basis, spanning from one time zone to another across the major financial centres, such as Sydney, Hong Kong, Tokyo, Frankfurt, London, New York, etc. As it is a 24-hour market, daily trading routines can be planned such that they do not interfere with other daily activities, particularly a full-time job and other household chores.
9. LOW TRANSACTION COSTS
Most Forex brokers do not charge a commission for trades entered through their platform. The cost of trading therefore comes from the spread between the bid and ask prices. Trading costs can be kept low by simply focusing on trading currency pairs where the spread is as narrow as possible. However, this depends on the strategies being used as well. Some strategies are more effective when used on crosses which have a wider spread.
10. PRICE STABILITY
Last but not least, due to the high liquidity of the Forex market, prices are always stable. This means that large positions can be executed at a fair price.
In order to be really successful in Forex trading, it must be looked at as a business (which it is, anyway) rather than a hobby. This means that there must be sufficient investment of time and money to be able to master the skills of trading, while at the same time practice good money management principles and conducting effective cost-benefit analysis, just like running a traditional business.
