Sometimes a simple question has a complicated answer and this one is almost the perfect example because you can answer it straight up with a Yes or a No… but the answer can also be a Yes and a No, depending on perspective: a guy who went broke with Forex will tell you to stay away, while a guy who made money will urge you to start trading. One thing is certain: Forex by itself is a success story and it’s up to you if you will be a part of that success.
The Forex Revolution
Today we call it Forex but the history of currency exchange goes a long way back, many centuries before computers and internet. In the 15th century, the Medici family opened banks at foreign locations in order to facilitate textile trading for merchants who needed to exchange currency. Later in the 17th and 18th century, an active foreign exchange operated in Amsterdam and soon foreign banks started to appear all over the world, with some of the more active cities being Paris, New York and Berlin, while London remained mostly uninvolved until around 1914. Today the Forex market is a giant compared to any other market and it continues to grow as seen from the Bank for International Settlements surveys: in April 2007 the entire Forex market averaged $3.3 trillion per day and this increased to $4.0 trillion in April 2010 while the peak was reached in April 2013: a whopping $5.3 trillion per day. Millions, trillions, gazillions, what’s going to happen in 2016 when the next report comes out? Will the daily turnover go up again? In fact, it doesn’t really matter because foreign exchange will always be present and to us retail traders it’s not really that important if the entire market reaches a turnover of $5.3 trillion or 4.8 or 6.1. There will always be enough pie for everybody to enjoy because Forex is without a doubt a success story. But to enjoy that piece of the pie, you will have to be on top of your game; you can’t just step up to the counter and order a pie, you have to earn it. Many people falsely believe that trading Forex is just a matter of basic knowledge mixed with a pinch of luck. Some of them got dragged into the business by aggressive marketing or dreams of quick riches and ended up losing everything or a big part of their wealth. A good example of such sad story is the big Tulip craze also known as a “bubble”. Inevitably all bubbles burst and this one took with it the wallets of many unsuspecting “tulip traders”.
The Tulip Bubble Trouble
Around the 1550’s, tulip bulbs coming from the Ottoman Empire reached Vienna and soon after, made their way into Amsterdam. This flower soon became a symbol of luxury and wealth. Just how today if you want to show off, you buy a Maybach, in 1600’s Nederland you would plant tulips in your garden. But according to the immovable rules of supply and demand, which also govern today’s Forex market, the price of tulips started to go up… through the roof actually and at the peak of the Tulip Bubble, a single bulb would cost up to ten times the annual salary of a skilled craftsman… yes, that much. No one really knows exactly how and why the Tulip bubble burst but historical data shows that at an auction held in 1637, no buyers showed up as they refused to pay such enormous prices. From there it was all downhill for the tulip price and needless to say that a lot of people who invested fortunes in tulip farms got broke… seriously broke. As soon as demand for the product went down, price went down, taking people’s fortunes with them and this is a behavior that still gets people broke today. When everybody is buying the Euro, EUR/USD goes up, but somewhere along the way someone says: “Wow, this pair is too high… let’s start selling”. That’s when demand for the currency starts to drop and supply is high because everybody was loading up on Euros thinking it’s going to reach the sky. The inevitable result is a bunch of traders going broke and answering a definitive NO to the question “Is Forex a success story”.
The Road to Success Is Paved With Empty Wallets
The truth is that Forex is no easy business and if treated lightly, it could get you broke. Risk must always be kept in check and the same is true for emotions. You cannot allow yourself to think about how much money you are going to make; you cannot day-dream about that Maybach or a garden of tulips without assessing the risks involved and without understanding that what goes up must come down. Fortunately there are experienced traders here to keep you on the right track and to slap you if you don’t keep your eyes on the ball. People like Nathan Kay of Forex is Why I’m Broke and Nick Bencino of Forex for Noobs, simply know how to make you stay in the game long enough to gather the necessary knowledge and teach you how to avoid and how to deal with Forex losses… yeah, losses are a part of the game. It’s simply worth to visit the more experienced traders blogs before buying tulips and of course to help you understand whether your bubble is about to burst or not. Oh, and I was joking about the slapping… Unless.
