Things to Know Before Starting Forex Trading
Forex (foreign exchange) trading is a dynamic and exciting way to make money, and something you can do from anywhere, with just a laptop or mobile device and an internet connection. But while many dream of making the big bucks from the get-go, the fact is that becoming a successful forex trader doesn’t happen overnight, and the learning curve is steep. It’s crucial to gain a good understanding of what you’re doing, knowing how to set your limits, control your emotions and seek professional help in some circumstances. Once you get going and get to know the ropes, however, it is possible to earn a decent living wage. Here are some top tips to get you going, and take your forex trading from beginner to expert level in no time.
If you’re not familiar with forex trading, it is best to get a good handle on the basic concepts. Put simply, you’ll be exchanging one currency for another for a favorable rate of exchange. Unlike stock trading, where you can buy a single stock, you are simultaneously buying and selling currency. For example, if you purchased 10,000 EUR with USD at an exchange rate of 1.1800 you would get 11,800 USD. But then two weeks later with the exchange rate at 1.2500 you change your 10,000 EUR back into USD, you would have 12,500 USD, with a profit of $700.
Learning how to successfully trade foreign currencies takes time, and getting frustrated or impatient will end up losing you money. Some people approach forex trading with the wrong attitude, viewing it as a get-rich-quick scheme, or an easy money-spinner. Nothing could be further from the truth, in fact, there will be quite a lot of trial and error along the way. But patience and determination pay off, literally, and once you have become well versed in the ins and outs (and the ups and downs) of the game, you will begin to see the reward. Good things come to those who wait.
Make a Plan
Before you get started you need to make a plan, clearly define your goals, and develop the right trading style to help you to achieve them. Each trading style has its own risks and benefits, and the one you choose will be a reflection of your goals and your character. If you can’t sleep at night when you have an open market position, you may wish to stick to day trading, with short term investments. But perhaps you are extremely patient (and have a strong nerve) so longer-term position trading may suit you better. The beauty of forex trading is that you can work entirely based on how you feel – minimizing stress is essential when it comes to speculative trading of this nature. The other thing to remember is this: stick to your plan. Remember that you are at your most rational before trading, but that rationality goes out of the window afterward.
Brokers and Trading Partners
Forex trading can be a lonely, solitary journey. But should you require the services of a broker, or a trading partner, it is vitally important to make sure they complement your trading style, and can work with you in a productive, mutually beneficial way. It is worth vetting a number of brokers before you make a decision, and to ensure that they have a valid license. There are resources online to help you find a professional, reputable forex broker, so you can work together with confidence. But remember, all the final decisions are yours to make, you are your own boss in this situation.
Reading the Markets
A crucial skill to develop is the ability to read and forecast the markets. There are many factors to take into account when it comes to fluctuations in exchange rates. There are technical traders who use analytics which can predict how the market will behave, and there are fundamental traders who observe news, politics, even the weather, as well as economic activity. In reality, most traders use a combination of sources to speculate market activity. In terms of current events that may affect exchange rates, you will be looking out for both good and bad news. Political upheavals, natural disasters, major sporting events, military incidents, even big media events – all these can positively and negatively affect how much currency is worth.
Keep Emotions at Bay
Any trader, or any gambler for that matter, will tell you not to let your heart rule your head. If you incur a loss, the temptation may be to recoup your losses (or attempt to) right away – this is a mistake. It is better to regroup, work out what went wrong, learn from it and try again. Revenge trading is never a good idea. Remember, forex trading is all about learning – you can never know enough.
Forex trading offers a way to make good financial returns, working remotely, for yourself, any time of day or night. It’s an inviting prospect, but one that needs careful preparation and patience.