2016 FOREX Trends and Predictions – How to Invest and Thrive
“When the market trends, it’s like an escalator; when it corrects, it’s like an elevator.”
If you have any experience in the FOREX market, this quote from Adam Button on the NASDAQ blog probably strikes a chord with you.
In any market, gains seem to be hard won, but losses can happen very quickly. This is as true of the FOREX as it is of any other exchange. With this truism in mind, it’s only fair to look at both the fantastic benefits and potential pitfalls of FOREX, some trends to expect in 2016, and of course, how traders can prosper during the coming year and beyond.
Risk and Pitfalls for Unwary and Uneducated FOREX Traders in 2016
The U.S. Securities and Exchange Commission, or SEC, has a lot of experience with all sorts of markets, including FOREX. The organization published the following cautions for traders who participate in typical retail trades made in the off-exchange market, or directly with brokers and other traders.
- Quoting conventions may not be uniform on all platforms or with all brokers.
- Costs and fees of transactions aren’t always clear.
- If these costs and fees aren’t considered, they could turn profitable trades into unprofitable trades.
- Investors should not totally rely upon any automated trading system as a substitute for knowledge about the FOREX market and a particular trading platform or broker.
- Investors should be wary of get-rich-quick schemes and outright fraud.
In other words, when compared to trading in more regulated markets, retail FOREX trading can be a bit like prospecting for gold in the Wild West. Some prospectors made fortunes; however, many lost everything but their shirts.
Why the FOREX Still Offers a Great Opportunity for Traders in 2016
After reading these warnings about how much could go wrong in the FOREX market, you might wonder why FOREX trading still attracts so many enthusiastic participants. First, it’s interesting to compare the size of this market to other popular trading markets. According to “FOREX Market Size: A Trader’s Advantage,” these are some facts about the largest liquid market on the planet:
- FOREX trades average about $5.3 trilliona day.
- In comparison, the NY Stock Exchange averages about $28 billion a day.
- The Futures market averages about $437 billion a day.
To put this in perspective a little better, the NY Stock Exchange would take about a month to generate the same dollar amount of trades that the FOREX market does in one day. It is the liquidity and size of FOREX that allows traders to enter and leave the market almost instantly. Typically, very large positions can enter and leave without impacting prices much, and it’s very rare that buyers don’t find sellers or sellers can’t find buyers. The market’s size and liquidity are the two main things that attract all types of traders from individual investors to large institutions.
What to Expect in the FOREX Market in 2016
As you probably know, the global currency market can be influenced by the activities of various central banks, commodity prices, and even political situations. To help you understand what to look for in the next year, consider the following situation.
The US Federal Reserve modestly increased interest rates. At the same time, the European Central bank modestly reduced interest rates. Some traders might have thought that these interest rate changes might have strengthened the USD and weakened the Euro.
However, neither the US move up nor the European move down were as dramatic as expected. As a result, the dollar stayed pretty steady while the EURO rallied quite a bit. The Federal Reserve has promised to increase the US interest rate in stages, so it might be beneficial to watch the frequency and size of these periodic adjustments over the coming year. Higher interest rate increases may make an investment in the dollar begin to appear like a better value and push the USD up. The absence or small size of these adjustments might leave the dollar flat or even decrease the value of the USD against other currencies.
Experienced and successful FOREX traders know that this market is both risky and complex under the best conditions. No successful FOREX trader will tell you honestly that he or she expects to profit on every transaction. Just as in the elevator vs. escalator analogy at the top of this article, you should expect to invest a significant amount of time and money in the process of becoming a thriving FOREX trader.
The most basic advice that will help you thrive in this market is to work with legitimate dealers and mentors. For example, the National Futures Association published a very informative document that is simply called “Trading FOREX.”
This publication isn’t intended to teach investors how to trade on this market, but to present a sensible overview of the market. In fact, the introduction begins with this advice:
“Retail participation in off-exchange foreign currency (FOREX) markets has increased dramatically in the past few years. If you are a retail investor considering participating in this market, you need to fully understand the market and some of its unique features.”
The size and liquidity of the market gives investors of any size the ability to control their trades and profit greatly; but that’s only true if they approach FOREX with the right skills, knowledge, and attitude. The basic characteristics of thriving FOREX traders are knowledge of the market, a good understanding of buying and selling signals, and maybe most importantly, the ability to balance profit and loss. Patience and a willingness to take the time to learn are vital characteristics of outstanding FOREX traders.
There’s a lot to learn. But like a surgeon has to learn how to operate from an experienced mentor, you need the advice of a FOREX expert who has already demonstrated that they understand how the market works and that they are legitimately invested in helping others succeed. The right mentor can help you learn how to take advantage of opportunities that others will miss and balance expectations to ensure that trading FOREX becomes a positive experience.
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