forex trading is the buying and selling of currencies based on market activity. Forex traders speculate on whether the exchange rate will go up or down and just like any other form of speculation, they want to buy a currency at one price and sell it at a higher price in order to make a profit.
For example, if they think the euro is going to rise against the U.S. dollar, they can buy the EUR/USD currency pair low and then sell it at a higher price to make a profit. However, if they buy the euro against the dollar (EUR/USD), and the U.S. dollar strengthens, they will then be in a losing position. They will then lose the trade or the money they risked on that specific trade.
However, there is no way of accurately predicting how the currencies will perform. According to Jaba Investments, forex traders “take calculated risks by relying on statistical probabilities to determine trades”.
But it’s not quite that simple.
The biggest misconception: a get-rich-quick scheme
Volatile, erratic, risky, personal, emotional, intense and stressful are some of the words Forex traders used to describe the trade to HuffPost SA. All emphatically share the sentiment that it is far from easy and definitely not a get-rich-quick scheme.
“You pack people into a class and ask them to pay R25,000 for two days, promise them riches but only 5% of them make money after,” says Forex Academy’s Ernest Klokow. “These people are overpromising because quick returns are largely not possible.”
“What they don’t tell you is that all beginner traders have a 95 percent chance of failing,” warns Real Trader’s Chrizette Rossouw. Rossouw had her accounts completely wiped out when she started trading and it took her years before she made any real money out of forex trading.
ACM Gold’s David Rosenthal says people who have made money quickly normally end up losing it the same way. His advice: “Steady and easy. Trade money as you would any other investment.” Rosenthal blames false advertising for creating unrealistic expectations and misleading people.
Johannesburg-based forex trader, Tshepo Brand, warns potential investors not to fall for brokers who guarantee returns. “There are no guarantees, and any forex trader who tells you that is a liar,” he tells HuffPost SA.
Colin Abrams agrees. A full-time forex trader himself, he tells HuffPost SA: “If you think it’s quick wealth, you are inviting short-term trouble. It is trickier and more complicated than people think, but people underestimate its difficulty.”