It is very important that the
individual wanting to trade foreign exchange be aware of the very
marked difference between speculation and investment. Forex
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
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.
Day trading alternative
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.
Conclusion
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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