The Forex For Beginners Method That Outperforms Equity Market Returns

Recent turbulence in the global foreign exchange markets may be concerning central bankers but for investors keen to diversify away from standard asset classes, volatility means greater opportunity. In a decade during which the S&P 500 has barely changed, Forex trading has moved from the margins to become a mainstream trading activity.

A decade ago Forex trading was very much the exclusive preserve of investment banks, hedge funds and other sophisticated investors. Indeed, the world’s currency markets had a fearsome reputation that deterred all but the most determined private investor from getting involved. However, over the last ten years a combination of dismal stock market returns and improvements in online trading resources have led to a jump in the number of non-professional Forex traders.

The drop in equity markets after the dot com bubble burst in 2001, led to an increase appetite from retail investors into the opportunities offered by non-traditional investments such as commodities. In particular, the events of 9/11 and the war in Iraq elevated the profile of hydrocarbon markets and lifted the esoteric world of commodities out of the shadows. Investors came to realize that unlike stock markets, they could make money whether the underlying asset was rising or falling and that volatility aided rather than detracted from this goal. The higher profile awarded to commodities was further solidified when it became clear that the integration of countries such as Brazil, Russia, India and China into the world economy would radicall alter the supply and demand profiles of commodities including industrial metals, foodstuffs and energy products. As a result of this increased profile, it wasn’t long before investment houses were offering a range of products whose ultimate performance was closely linked to movements in the commodity markets.

In the wake of the new interest in commodity trading has been a significant increase in foreign exchange trading. Investors noted the similarities between the two markets, not least ability to make profits regardless of market direction, and a number of online products and services were created to help educate and provide traders with the tools necessary to engage in Forex trading. Fast forward to today and astonishingly a Google search for the expression “learn forex trading” results in over 10 million pages compared to just 3.7 million for the term “learn stock trading”.

There is now big demand from retail investors, part-time traders and even college students for information and products that help them profit from the volatile world of currency trading. Most however are likely to be unsuccessful. It is generally accepted that a maximum of 20% of traders engaged in markets such as Forex, commodities and futures are likely to be profitable, many will simply lack the discipline necessary to become profitable in this demanding environment and return to the less challenging equity markets.

Interestingly, professional forex traders suggest that the most common reason for newcomers to fail is not due to a lack of information or trading resources but that in common with elite sportsmen and women, profitable trading is largely a matter of managing emotions, understanding probabilities and effective risk control. For example, it is very common for successful traders to only make a profit on half of their trades, however when these results are combined with a strict methodology for managing risk (often referred to as “running profits and cutting losses”) the returns are impressive.

Newcomers can begin trading with as little as $200. But those with limited or no experience are strongly encouraged to practice their trading in a demo account before committing real money to the market. Whilst no one should believe that Forex trading will ever surpass more traditional investing strategies, for those with the patience and discipline to learn from the professionals it is well worth adding this activity to your trading arsenal.

For additional information on the challenges facing newcomers and an effective forex for beginners blueprint created by a renowed trading veteran visit www.beginnersforex.org