While it’s widely accepted that the former PM’s so-called “mini budget” had a catastrophic short-term impact on an already stricken economy, the fact that it threatened the collapse of private pension funds raised more than a few eyebrows.
In fact, the Bank of England (BoE) was forced to invest a staggering £65 billion to help prop up ailing pension funds, with a cross-party committee of MPs subsequently meeting to explore these issues in further detail.
Certainly, anyone approaching retirement is likely to be concerned at the moment, as their potential state pension continues to dwindle (while the average retirement age rises) and private funds continue to face a marked shortfall.
But while now may be the ideal time to take charge of your pension and financial future, could forex trading offer a viable and profitable option? Here are some considerations to keep in mind.
Getting Started – What is Forex?
The term forex describes the “foreign exchange”, which is an international platform through which various currency pairs are exchanged and traded in a bid to achieve a profit.
Forex or currency trading is a speculative endeavor, which enables you to utilise different investment vehicles and pursue profitability without assuming ownership of the underlying asset.
Because of this, it’s theoretically possible to make money from forex trading regardless of the market or wider macroeconomic conditions, as you can go long (buy) or short (sell) different pairings depending on the market’s precise movements.
Individual currency pairs reflect this, as this is essentially a price quote of the exchange rate for two different currencies traded in the FX marketplace (there are some 170 individual currencies currently accessible to traders).
The first currency is also known as the base currency, and this is bought in a particular transaction. Conversely, the second listed currency is the quote currency, and this is sold according to the terms of a free-floating exchange rate when dealing with major and minor pairings.
Assessing the Viability of Forex Trading for Retirement
The question that remains, of course, is whether forex exists as a suitable investment option for those considering retirement. To provide some context, we’re going to look at the broader pros and cons of forex trading, before evaluating what these considerations mean depending on your age and circumstances.
• Pro 1 – Increased Liquidity: Liquidity broadly describes the ease with which assets can be bought and sold in the financial market, and currency markets remain the most liquid out there. This certainly applies for popular major pairings like the EUR/USD, which is the single most traded currency pair and one that benefits from constant demand. This provides flexibility for investors, especially older individuals whose retirement is looming large.
• Pro 2 – Inflated Leverage: Leverage is usually expressed as a percentage, while it’s created by margin and affords you increased trading power and capabilities. When you deposit money into a margin account, you can access leveraged products up to 200% in some instances, enabling you to open and control disproportionate large positions and potentially optimize your returns over time.
• Pro 3 – Access a Quick Market: Depending on your outlook and chosen investment vehicle, you can deploy FX trading strategies that unlock incremental returns within an incredibly short period of time. So-called “scalping” orders are opened and closed within a matter of minutes, for example, realizing small but consistent profits over time. So, it’s possible to trade flexibly and access quick returns when trading forex, which appeal to those approaching retirement no matter how old they happen to be.
• Con 1 – Forex is Highly Volatile: The forex market is incredibly volatile, with currency prices impacted directly by geopolitical tumult and constant macroeconomic changes (alongside the basic principles of supply and demand). Volatility may be disconcerting for older investors with retirement on their minds, as it’s possible to achieve both impressive gains and striking losses within an incredibly short period of time. Remember, the FX market is particularly volatile at present, thanks to factors such as the war in Ukraine and rampant inflation.
• Con 2 – Increased Risk of Loss: The risk of loss in the forex market is amplified by the use of leverage, as it’s possible to incur significant and disproportionate losses on individual orders. If you’re an older investor (particularly over 50) or you have a decidedly conservative or risk-averse outlook, this could be highly damaging, especially if you’ve already built a solid pension plan or investment portfolio and are looking to consolidate your wealth.
• Con 3 – The Market’s Complexity: The forex market is also a relatively complex space, which can be difficult to navigate for newcomers or novices. Remember, currency prices fluctuate according to a number of factors, while many of these variables are constantly changing and altering the market’s landscape. Coupled with the FX market’s fast pace and liquidity, inexperienced investors often look to seek flight from forex in favor of simpler and less changeable asset classes.
The Bottom Line
As we can see, forex trading has numerous pros and cons, while it has the potential to both significantly boost your pension pot and incur huge losses that set back your retirement plans.
Ultimately, much will depend on your age and outlook. Certainly, older investors aged 50 and over may prefer to eschew forex for more dependable investment options, as they look to consolidate their wealth and focus on incurring incremental gains and dividends over time.
Similarly, forex is less than ideal if you’re a risk-averse investor with minimal experience of the marketplace, as knowledge, understanding and determinism are key if you’re to succeed when trading currency pairs.
Conversely, if you’re younger and want to accumulate wealth for your retirement (and retain a healthy appetite for risk), you may want to consider incorporating target currency pairs into your investment portfolio.
Before we go, we’d recommend that you take our trading quiz to learn more about investment and determine whether forex trading is right for you.
If you decide to proceed, be sure to open a so-called “demo account” with a reputable forex broker before getting started for real. This will offer you access to a real-time, simulated marketplace in which you can test and hone your forex trading strategies, without forcing you to risk your hard-earned cash!
