The so-called “gig economy” continues to thrive in the UK, with statistics suggesting that some 48% of all gig workers operate in this market while also holding down a full-time job.
The reason for this is simple; as this is arguably one of the more effective hacks at reducing your overall cost of living, especially at a time when inflation continues to rise at a disproportionate place to earnings.
But is trading forex a viable secondary income stream? We’ll discover more in the article below, while asking how you can get started in this marketplace.
What is Forex?
The forex market is shorthand for the foreign exchange, where international currencies can be exchanged and traded in real-time. They’re traded in major, minor and exotic pairs too, the majority of which are governed by free-floating exchange rate.
These fluctuate in real-time in line with an array of factors, including macroeconomic metrics, geopolitical trends and the basic law of supply and demand.
It’s also interesting to note that currency trading is speculative in nature, which means that you can profit without assuming ownership of the underlying asset and hedge against specific pairings in some instances.
Major currency pairs pit eight assets from developed economies against the US Dollar, which is the world’s dominant currency and sits on one side of 88% of all forex trades. These assets tend to be among the most stable and liquid, which means that they’re relatively easy to buy, sell and trade in real-time (regardless of the prevailing market conditions).
The Pros and Cons of FX Trading
While the forex market is among the most popular entities of its type in the world, this space is also incredibly volatile and prone to violent price shifts. But what are the precise pros and cons of trading forex?
- Pro #1 – High Liquidity: The forex market is highly liquid, especially when dealing with major, in-demand currency pairs such as the EUR/USD. This means that they can be seamlessly bought and sold in real-time, making them easy to convert to cash holdings if necessary (this may be required or beneficial during a recession).
- Pro #2- Optimal Leverage: The FX market is also highly leveraged, which means that you can use margin (or your deposit) through a forex broker to open and control positions that are disproportionately large. Some brokerages offer leveraged forex products up to 100% or even 200%, creating the potential for significant returns.
- Pro #3 – Flexible Trading Strategies: There are a myriad of forex trading strategies and investment vehicles available, which enable you to target short, medium or long-term gains while respecting your appetite for risk and wider trading outlook. This is crucial for investors, who can operate within their comfort zones and optimize their chances of success.
- Con #1 – Leverage Can Also Trigger Losses: If we accept that leverage can deliver increased returns, it stands to reason that it may also cause disproportionate losses if the market turns against you. So, it’s important to manage your leverage carefully and utilize this in line with the value of your cash holdings and risk profile.
- Con #2 – Increased Market Volatility: While risk hungry investors can leverage volatility to achieve short-term profits through strategies such as scalping, this can also cause losses and deter risk-averse traders. You’ll need to keep this in mind before committing your hard-earned cash.
- Con #3 – Forex Trading is Complex: Ultimately, there are myriad factors that impact the forex market, from macroeconomic metrics like inflation and interest rates to geopolitical tensions and trade flows between countries. These factors have an aggregate effect on the market, creating a complex scenario that’s hard to plan for in real-time.
So, is Forex Trading a Viable Secondary Income?
As we can see, forex trading is a challenging pastime, and one which only sees around 30% of traders achieve a consistent profit.
So, although it’s ideal for risk-hungry investors with knowledge of the market’s fundamentals and a keen sense of determinism, it’s less suitable if you have a risk-averse nature and are relatively inexperienced in the marketplace.
Certainly, we’d recommend educating yourself about forex and building a broad base of theoretical knowledge before investing, while also using a so-called “demo account” to hone your strategies and experiment within a simulated, real-time marketplace. You can usually use this type of account for around six months, while it allows you to trade without committing your hard-earned cash.
It’s also important to start small by trading one or two major currency pairs, before scaling and diversifying your currency holdings organically and in line with profitability and experience.
On a final note, you could also take our interactive trading quiz to see whether forex trading is right for you.
After all, while there’s no doubt that forex trading can unlock a lucrative secondary and passive income stream for investors, the FX market is highly volatile and not suitable for everyone!
