There are success stories and cautionary tales, so just how dangerous is Forex trading?
A few weeks ago, Save the Student ran a story about Liam Davies, a University of Edinburgh student who made such a success of Forex trading that he was able to double his money in the space of 12 months and fund his studies. Davies used a technique known as social trading to observe and follow the activities of experienced traders, and focused much of his activities of cryptocurrencies such as Bitcoin.
Forex trading has received plenty of media attention recently, and not all of it in a positive light. There are numerous examples of amateur traders who have taken on the markets and come off second best – and Bitcoin, in particular, is often seen as a highly risky investment option due to its high volatility.
So what is the real story here? Can students genuinely make money trading Forex, or is Liam Davies just the exception that proves the rule?
Social trading gives amateurs a head start
The cautionary tales that abound regarding amateur traders are a reflection of the fact that there’s a big difference between saying that anyone can trade Forex and saying that anyone can trade Forex profitably. Installing an app on your smartphone, transferring some money onto your trading account and calling yourself a Forex trader is the easy bit. Understanding the nuanced and ever-changing markets, reading the indicators correctly and knowing what and when to trade, however – these are skills that take time and hard work to acquire.
A few years ago, it would have been true to say that there were short cuts, and that to become a successful trader there was a great deal of theory to learn and techniques to master. Today, that’s only half-true. Social trading allows the enterprising amateur to hang on to the coat tails of the professionals, following their leads and matching their trades.
Davies used a social trading network that showcases the activities of its top traders. It provides an opportunity to chat directly with other users and even has a “copy trader” feature, that does exactly as the name suggests. He also made use of social media networks like Facebook to pick the brains of trading experts.
The platform he used is not just for trading Forex – it can also be used for buying traditional stocks and shares. However, in this instance, Davies chose to specialise in an area that is often seen as too risky, particularly for amateurs: The world of cryptocurrencies like Bitcoin and Ethereum.
Imitation only gets you so far
We described social trading as a shortcut to building your own knowledge and expertise, and that’s exactly what it is. But there is no getting around the fact that to become successful, you still need to go through the learning process. Following blindly will not get you over the line, as you must understand the strategy, risk appetite and yield expectations of the trader you are following, to make sure your own circumstances are aligned.
There also comes a point when following can become dangerous, particularly in the cryptocurrency markets. We all know that Bitcoin is subject to significant volatility, and when values escalate, a bubble forms that is just waiting to burst. The key to success is knowing when to sell while others are still buying. And that means being able to read financial indicators like the Bubble-O-Meter, a cryptocurrency analysis tool that provides an early warning when Bitcoin is being overbought and the bubble is likely to burst.
Making money from trading
The media is full of “get rich quick” schemes, none of which are ever quite as they seem. And rightly so – anyone who tells you that you can make a vast amount of money with minimal effort or experience is either deluded or they are scamming you. The truth is life doesn’t work that way, and if it did, we would all be doing it and the global economy would collapse overnight.
So much for bursting yet another bubble, but the equal and opposite is also true. People can and do make money in all sorts of ways if they have skill, determination, ingenuity and maybe just a little bit of good fortune to be in the right place at the right time.
The Liam Davies example proves that you can make money trading, and that there is no reason to be afraid of dabbling in the more risky areas. However, to do so will need research, preparation, dedication and hard work. It also demands the right approach to risk, and the ability to analyse and interpret what can sometimes be complex mathematical tools.
So by all means download an app, set up a demo account and start getting social. But always remember, that is only the beginning of the journey, not the end.