It is safe to say that there is no financial market in the world that is as big as the global forex market. With online trading coming into the picture, forex trading is now open to individual investors as well. Since it holds great potential to make financial gains, it attracts beginners and experts alike.
Easy access is a great advantage linked to the forex market. Since it operates 24 hours a day, offers a lot of leverage, and allows traders to get started with low investment, the trade market has a lot of beginners in it. A common mistake that most beginners do in forex is that they enter and exit the market too soon, without much thought. As a result, they incur losses.
Here are some tricks of the trade for those who are just getting started:
Ongoing education
There isn’t an alternative to learning. It is an important and essential part of being successful in forex trading. Even though one learns the most about the trade while actually actively participating in it, learning about external factors is also a must. Before investing in trade, thoroughly understand the socio-political and economic factors that impact your currency pair.
Remember that this is not a one-time effort. The market keeps changing as new variables come into the picture and therefore if you do not adapt your strategies as per the changing scenarios, you are likely to be at loss. Make note of your long-term and short-term investment goals to create a trading plan that suits your requirements.
Finding a reliable exchange
As a forex trader, you must always ensure that your trading account is with an exchange that is regulated. Every nation has a regulatory body where all forex exchanges must be registered in order to continue trading legally.
You must also carefully study their account offerings are. Does it include commissions, leverage, and initial deposits? What are the withdrawal policies?
It is convenient if your exchange has a good customer service team that can handle all the queries and provide adequate information.
Using a demo account
If you want to get used to operating your account on an online trading platform, start with a demo account. These accounts are hosted on most platforms and are a good way to take hypothetical positions to understand how the market works without actually using any capital.
Clean charts
As a beginner, you may be tempted to explore all technical analysis tools at once. But the more you understand the market as you research, you will learn that trying to use all technical advice in a single trade can be counter-productive. For example, using two or more volatility indicators can have little to no effect.
Other than tools, interactive charts that are comprehensive even for a beginner are extremely useful. It helps you read the market trends without having to actually decode them and thus you can make relatively quick trading decisions.
Starts small
A friendly match can never equal the thrill of playing a real match in any sport. It’s the same with forex trading. Once you’ve researched and practiced, you’re ready to enter into the real business. It is not possible to thoroughly experience trading until you go through slippages (the difference between the expected price of a trade and the price at which the trade is actually executed) that may generate an emotional response that you must not act on. Also, never forget that when you’re practicing with a demo account, your trading strategies may seem perfect most of the time. But you truly get to test the waters only when you actually enter the market.
Start small, invest wisely, and do not act impulsively in order to be successful.
Money management
Mitigating losses is as essential as making profits when it comes to forex trading. Knowing the right entry as well as the exit points is extremely important. Industry experts agree that good management techniques are necessary to learn when it is the right time to exit a trade.
Once you’ve identified your exit point, putting a stop-loss strategy in place is the wisest thing to do next. While that does not mean that you would not incur any loss, a stop-loss position can help ensure that the loss is not one that leaves you in a bad shape. A lot of forex traders also specify a loss amount they’re willing to incur every day. If that point ever comes, all open positions are closed until none are initiated until the next session.
Leverage
Forex attracts a lot of investors. A popular reason is that it allows one the flexibility to start small and still make huge profits. When used wisely, leverage offers a lot of growth opportunities but one must not forget that it can also magnify losses.
Here’s an example of how you can manage the leverage amount. Suppose there is $10,000 in your forex account. So a $100,000 position (one standard lot) will take up 10:1 leverage. Now you could open a larger position too but remember if the leverage is more than 1% of your base, the risk associated also increases.
Documentation
Maintain a trading journal to effectively keep all your learnings about profits and losses in one place. Keep track of what instruments and indicators you used on specific dates, and note whether you made a profit or faced a loss. Review this from time to time and see if you can do something differently or adapt your strategy.
Tax savings
Be a smart trader by being aware of all tax implications and treatment of forex trading. Work closely with a qualified accountant or a tax expert who can help you navigate through legal documents and references.
Forex trading can be very rewarding and profitable but if you’re in it expecting quick results, it may not be the right place for you. Approach forex as a business, where you invest your money and go the extra mile to research and learn what you can do to increase profits and decrease losses.