Basics of FOREX trading on the move
If you have a laptop, travel in your business, and are a FOREX investor, you can benefit from trading while you’re on the move. FOREX trading is very straightforward as you are basically purchasing one type of currency with another one. If the exchange rate of the currency you are purchasing moves in your favor, you will be able to buy back your original currency and realize a profit on the trade. The following section highlights the pitfalls of FOREX trading but they are also the basics to successful trading on the move as well.
Possible pitfalls of FOREX trading
As with any type of investment vehicle, there are key disadvantages to be aware of. The four disadvantages are no education, risk, leverage, and market volatility. Consider the following:
Education or the lack thereof – this could make the difference between realizing a sizable profit on your investment and losing everything.
Risk – no investment is without a certain amount of risk. Ignoring these risks are the primary reasons why nearly 95% of all the investors who are first starting out in the FOREX market lose money.
Leverage – in the FOREX market, you can leverage your investment by as much as 400:1. Granted, this creates the potential for tremendous profits, but it also means that you could lose severely by over leveraging your investment.
Market volatility – the FOREX market like any other trading market can make huge moves up or down on a daily basis. When you combine this volatility with the three aforementioned factors, you have the potential for huge losses or huge gains.
Benefits of FOREX trading
Ironically, as huge and as liquid as the FOREX market is, many investors still insist on investing in futures and the stock market. However, there are still a number of advantages and benefits involved with currency trading including:
Spread rates – although the spread or difference between the buyer’s bid price and the seller’s asking price may only be a few hundredths of a cent, this can still equate to sizable gains on the investment.
Trading commissions – in some instances FOREX trading is commission-free which is a rarity with futures and stock brokers.
Margin requirements – in some instances, the margin requirement is only 1% meaning that you can control your position for as little as $1 per $100 invested.
24-hour per day trading potential – in the US, you can start trading at midnight on Sunday and keep going around the clock until 11:00 pm on Friday.
FOREX trading and taxes
The tax code involved with FOREX trading profits is oftentimes confusing. Some taxes fall under Section 988 (the Treatment of Certain Currency Transactions) while others fall under Section 1256 (FOREX contracts). Regardless, having professional tax help whether corporate tax preparation or personal is a benefit to the investor or investment group. Remember first and foremost that every trader is required to pay taxes on the capital gains they realize on their FOREX investments. This may even involve filing a free tax extension if you have not managed your personal income taxes well enough. Whenever possible, you should hire the services of an income tax accountant or tax professional.