It is very important that the individual wanting to trade
foreign exchange be aware of the very marked difference
between speculation and investment. Foreign exchange trading
is by nature a speculative occupation. Foreign exchange
markets are amongst the most volatile markets in the world.
When traded on a margined basis they effectively become
the most volatile in the world. Day trading in foreign
exchange can be extremely profitable and high-risk profile
traders can generate huge percentage returns even overnight.
Day trading is however a mentally and psychologically challenging
activity and is by no means meant for everyone. Day trading
is essentially speculation and day traders essentially only
do that: day trading. Most people who trade foreign exchange
are not professional day traders however.
Often the contractors of foreign exchange brokerage services
are professionals in some capacity or other. These people
do not day trade but take the occasional position from time
to time. This is also speculation and should not be confused
with making an investment.
The conclusion here is that the nature of foreign exchange
trading not lend itself as much to investment as it does
to speculation and hedging (hedging may be performed in
forward instruments). It is possible in a sense to make
an investment in foreign exchange over a long-term period
but this necessitates a large account value and low leveraging.
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