Pros and Cons of Forex Trading for Seniors

By Susan Weber

Forex and seniors could be a good match if it fits your financial plan and you have the time and concentration to keep up the analysis.

Basics of the Forex Market

The Foreign Exchange market, often called the "Forex" or "FX" market, is the largest financial market in the world, with an average daily turnover of $3.2 trillion. Foreign exchange is the market where currencies are exchanged by the simultaneous selling of one currency and the buying of another currency. For example, the sale of a United States dollar and the purchase of a Euro would be a foreign exchange transaction.

A Forex investor watches the value of various currencies around the world fluctuate based on the economic or political climate of a particular country or situation. Then, he or she buys or sells the currency over the telephone or online.

Forex is considered an Over The Counter (OTC) transaction. The Forex is not traded centrally on an exchange like a stock transaction. Instead, the transactions are between two interested parties, such two banks, or a bank and a private investor.

Pros and Cons of Forex Trading

As with any type of investing, there are advantages and disadvantages to Forex investing:

Pros

Price stability - The huge volume of the Forex tends to set the pricing pace for all currency transactions. Prices of individual currencies remain consistent with the prices set during Forex transactions.
24-hour market - Buyers and sellers can quickly respond to market conditions by trading during any, or all, of the three regional trading market sessions: in the United States, Europe and Asia.
No commissions - The cost of the trade is built into the cost of the currency.

Cons

Ongoing analysis required - One key to being successful in the Forex market is the investor's ability to identify and respond to trends. The price of a currency could change dramatically within a day and a lack of analysis could result in a lost opportunity for a profitable buy or sell.
High risk - The market for a specific currency can quickly turn negative. Investors who are not closely following the news and updating their trend tracking can experience losses in their portfolio.

Forex and Seniors

Forex investing could be a good investment strategy for seniors if they:

Enjoy computer analysis.
Have the time and willingness to track their currency investments frequently during the day.
Want to add a manageable high risk, high return element to their portfolio.

Forex and seniors might not be a good mix as an investment strategy because Forex:

Is high risk investing - Prices can quickly rise and fall. The value of an investor's Forex portfolio can change hourly. Seniors may not want to put part of their investment portfolio in a high risk investment that may, or may not, return to stability.
Requires significant research and analysis - Forex brokers usually provide basic tracking and performance trend lines. However, the investor needs to establish sources for ongoing research regarding the social and political actions that might affect the value of a country's currency. Some seniors are not comfortable with, or interested in, doing this level of research and analysis.
Requires immediate attention - Investors have to be ready and able to take immediate buy or sell actions. Many investors subscribe to alert services that inform them when a currency price starts to move in either direction. Some seniors do a lot of traveling or do not have the time or computer access to immediately respond to a currency price move and potentially place a buy or sell order.

How to Get Started in Forex

First: Do your homework. There are several good books on Forex, including:

Forex Made Easy by James Dicks
Currency Trading For Dummies by Mark Galant and Brian Dolan
Getting Started in Currency Trading by Michael Duane Archer and James Lauren Bickford

Second: Find a Forex broker that is oriented towards client education and training. Forex.com offers a lot of online education, Web seminars and a free practice account. FXStreet.com offers online training courses as well as seminars throughout the United States.

Third: Start your analysis. Many Forex brokers offer software that is already designed to track and identify key market indicators. You should consider increasing the font size on your computer and using a large print keyboard to help your eyesight after long periods at the computer.

Fourth: Set up and fund a trading account. Study the research provided by your broker. Learn to create trend charts. Practice investing by starting with small trades. Some brokers have a "small account" feature that gives an investor a way to start trading with small Forex trades.