The forex market is a decentralized marketplace for exchanging the world’s top currencies. It is at present the largest and most liquid financial market in the world with a daily trading volume of about US$6.6 trillion, exceeding the stock market. It can be a low-risk and high-return business, making it a lucrative venture for new investors and experienced traders.
Unlike traditional businesses, you do not need a huge starting capital and a well-drafted business plan to step foot into forex trading. While it can be a profitable business, it does not mean that it is devoid of risks. Accordingly, it is imperative upon you as a beginner to acquire the relevant knowledge and learn the fundamental techniques before investing to make successful trades and avoid losses.
The article will put forth six essential steps to get you started on your forex trading journey and set you up for financial success.
Forex trading is not an overly complicated subject, nor does it require any special skills or qualifications. But you do need to dedicate time to gain sufficient specialized knowledge and learn how the market works. Gaining sufficient knowledge will allow you to adjust your trading strategy and make smarter trading decisions, minimizing the chances of entering into losing trades.
Learn about the top currency pairs and how global events and inflation impact their prices and the financial markets. Learn the trends, terminologies, and how to read the trading charts to set yourself on the right path to understanding and overcoming the complexities of the market and predict trades.
There are various ebooks, free online resources, and trading courses available that you can utilize to learn the ins and outs of forex trading. Regularly reading and educating yourself will make for a positive trading experience by substantially reducing the risk of failure and enhancing the likelihood of profitable results.
Choose the Right Broker
This is often a neglected element of forex trading by beginners and a common pitfall they fall into. Choosing a reputable broker is perhaps one of the most vital starting points before you set foot into the world of forex and begin trading.
Set aside plenty of time carefully looking for and scrutinizing brokers regulated by the relevant supervisory authority. Check their reviews online and assess whether their trading style and platform aligned with your preferences and expectations. For instance, MetaTrader4 Forex Brokers will offer a rich user experience, allow you to test strategies of any complexities with ease, and set you up for making winning trades. An unreliable broker with questionable security and legitimacy of the platform will only impede your progress in becoming a successful trader and hinder you from reaching trading goals.
Therefore, trading with a trustworthy broker will ensure that your money is safe and in good hands and work in your best interest to achieve consistent profitability.
Practice With Demo Account
As with most things in life, practicing is the key to becoming a successful trader and maximizing your return on investment in the forex market. Fortunately, there are some viable ways to test the waters without risking any real money on your end.
Almost all trading platforms offer free and easy-to-use demo accounts that allow you to trade with virtual currencies to get a feel of the forex market and improve your trading skills. A demo account will provide you an opportunity to get accustomed to the trading platform and its features, try out various trading strategies and techniques, and test your trading plan in live market conditions. Trading on a real forex account without sufficient learning experience and practice on a demo account first is a recipe calling for disaster.
Likewise, a micro forex account helps you become more comfortable with forex trading and determine your trading style by letting you trade with small amounts.
Start With Low Amounts
As a beginner to online trading, the excitement and adrenaline can be high. Many novice traders view forex as an easy way to get rich in a short period. But success does not come overnight, and you can not get rich on a single trade. Therefore, it is vital to discipline yourself to manage risks by starting with small trading volumes and testing your trading strategy.
Do not be tempted to dive straight in with big money trades, but keep patience and take your time by making small investments per each trade. A good rule of thumb is to risk less than 2% of your whole trading capital on a single trade. Making large trades in proportion to your entire trading balance from the outset in a bid to make hefty profits is likely to go against you and lead to severe losses.
Use Stop Loss Orders
A stop-loss order is one of the most crucial risk management strategies you must know about forex as a newbie to trading. Simply put, it is an automatic buy or sell order whereby you can lock in a specific price point and exit a trade if the market moves contrary to your predictions. It is a valuable instrument that helps limit risk and protect your trading capital from suffering a loss as it closes a trade once it reaches a specified value.
Trading without stop loss hoping for the market to turn around is a risky move, and you can potentially lose more than intended on a single bad trade, or perhaps more than your initial invested amount.
Keep Emotions at Bay
Being emotional is your gateway to making rash decisions, which puts you in danger of risking your capital. Whether it is greed, panic, excitement, or nervousness, your psychological state has a significant impact on your trading decisions, which ultimately determine success and failure. For example, being overconfident and continuously increasing your trading amount after a successful trade is a bad idea.
Whether it is a big payout or a massive loss on a particular trade, staying rational at all times and taking on a logical approach to trading are at the core of your success. Even the most experienced traders with the most impeccable strategies have their ups and downs. But what differentiates successful traders from unsuccessful ones is their ability to handle market fluctuations with a balanced state of mind by staying calm and relaxed, especially after a series of losses.
Trading forex is an excellent way to diversify your investment portfolio with comparatively lesser risk, as compared to other investments, such as cryptocurrency and commodities. However, persistence and determination are key elements to achieve success in the industry.
Approached responsibly with the proper knowledge and preparation, you can learn the art of making consistent winning trades and see significant growth in your investments in the long run.