“You Could Have Turned A Simple $10,000 Investment, Into $251,000 Over The Past 48 Months…”
So reads a recent investment opportunity in managed Forex…
Sounds pretty good, right? Who wouldn’t want to turn $10,000 into $250,000 in 2 years? I know I sure would!
And the truth is, you can achieve these results in Forex (it’s certainly technically possible)….but you can also get your butt handed to you on a silver platter, because all of that “wonderful” leverage works both ways.
This means you could lose not only your original $10,000 investment, but much, much more…up to $250,000 in this example!
Suddenly that doesn’t sound so “fun”, does it?
(What on earth are you supposed to do if you lose $250,000 on a $10,000 investment? I hope visions of the most nefarious evil bookie from Goodfellas or pick-your-favorite-mobster-movie are appearing in your head…this can be a very dangerous game.)
But that’s not mentioned in this opportunity, at least not in the initial pitch…instead you are supposed to envision how amazing your life would be if you had just an extra $500, $5000, or $15,000 / month “passive income”…(man, mine would be pretty incredible!). 🙂
There is a lot of “smart money” in the Forex market, and I am not “anti-Forex”. However, remember that there is always someone on the opposite side of each trade…and I desperately want you to be on the “smart money” side!
And in order to become “smart money”, you first have to become smart…you’ve got to educate yourself about the risks involved with each new investment area you’re exploring (Forex in this case) and then wade in carefully, learning as you go and taking care to always-always-always limit your losses.
(Remember Warren Buffett’s two rules of investing:
1. Don’t lose money, and
2. See Rule #1!)
We live in an instant-gratification “NOW” society, and it’s easier than ever to make (or lose) a lot of money in a heartbeat. Text messages instantly communicate with your broker who might be thousands of miles away in another country, and you can place a buy/sell order on a stock with just one click of your mouse button.
It is more important than ever in this “NOW” society to get educated before using that trigger finger! There is nothing worse than that horrible, sickening, sinking feeling in your gut after having made a split-second huge irrevocable decision…believe me, I know, and I never want you to experience that!
So what exactly is Forex, and are these returns actually possible?
“Forex” is short for “foreign exchange”, and you will often see it abbreviated as simply “fx”. The foreign exchange market is the largest and most liquid financial market in the world, turning over some US $4 Trillion daily, and is continually growing. It was established in 1971 with the abolishment of fixed currency exchanges (remember our discussion on the severing of the US Dollar from the gold standard in 1971…currencies lost any remaining ties they had to gold and became freely floating).
What is traded on the foreign exchange?
Currencies… Forex trading is the simultaneous buying of one currency and the selling of another, and these transactions are coordinated through a broker or dealer. As we have discussed in previous articles, currencies aren’t anything “physical” (unlike a bar of gold or a bag of rice)—they are an abstraction of money (and in today’s world, they are debt).
When you purchase a currency, for example the euro, you are betting that the European Union will solve its problems, get its act together, restore its economy, and prosper, versus the other countries of the world. (Guess who’s not buying the euro anytime soon…) 🙂
Unlike other financial markets, the Forex market has neither a physical location nor a central exchange. The Forex market is considered an Over-the-Counter or “Interbank” market, due to the fact that the entire market is run electronically, within a network of about 5000 trading institutions such as international banks, central government banks like the US Federal Reserve, and commercial companies and brokers.
A few years ago, you really couldn’t even participate in Forex unless you were a large financial institution, a government, or someone with an extremely high net worth, say in the tens of millions. There is good news and bad news here….the good news is that many of these opportunities are now being opened and offered to much smaller investors (but as you guessed, that is also the bad news!). I am 1000% in favor of openness and access to all, but you absolutely must get educated first.
A quick word on leverage…leverage, like money (and like most things in life), can be either “good” or “evil” depending on its use. One of the major reasons why profit/loss potentials are higher in Forex is the use of leverage. In Forex, $10,000 in your account can be allowed to control as much as $1 million or more on the foreign exchange market, and the risk of loss is equal to the potential for gain. (On the contrary, in most other leveraged investments the amount of leverage you’re allowed to use is much more limited—most stocks you can buy using only 2:1 leverage, and with real estate you typically need to invest 20% as a down payment, etc….but Forex lets you get leveraged as much as 100:1 if you so choose!).
I want everything “NOW”, too. I really do. If you’ve been reading my articles for any length of time you’ll know that patience and self-discipline aren’t exactly my strong suit (I write these articles as much for myself as I do for you sometimes!) 🙂 and I would love to turn $10K into $250K in two years (heck, I’d like to do that next week!).
But I continually try to remember the wise words of one of my favorite heroes, Bruce Lee,
“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” — Bruce Lee
In other words, get educated, practice, and then pull that trigger.
What about you? Have you waded into Forex and what do you think about it? I would love to hear your opinion and experience!
To your financial success,
— Kung Fu Girl