Given the numerous financial challenges and opportunities that we have been facing recently, it’s hardly any wonder that the appeal of forex trading seems to be growing. Making a profit by mere swapping sounds like a highly promising prospect. Many people might tell you that you don’t need to be an expert to succeed, and there’s no denying the area is open to newcomers. However, the most logical question one might ask themselves is how?
Suppose you are determined to go and trade Forex, and sure enough you want the enterprise to be a success. Where do you start? How do you make up your mind as to which trading strategy to try out first and how to secure your capital? What does it take to navigate the confusing, fluctuating market of foreign currency without either taking too much risk or missing an opportunity? These and other essential questions are answered below.
Learn the Theory Behind Forex
This might sound punishingly boring, but the foreign exchange is a whole world of its own, with lots of discoveries waiting for you along the way. Just make sure you neither start the journey too abruptly nor go unprepared. No matter what your intention is, you’ll need to bring the baggage of knowledge including widely used terms and their definitions (say, what’s a pip?) as well as a basic understanding of how currencies work. Finally, learn to read financial infographics such as charts to get helpful analytical data.
As a beginner, you’ll also need to decide whether you are attracted to spot market or CFD trading. The key difference between the two concepts is that the former means trading currency that you actually own, while contracts for difference, or CFDs, are all about predicting which direction the price for this or that asset will go. Each approach has its pros and cons. The latter is generally associated with looser regulation and higher risks while offering greater opportunities to those playing on a budget.
Look for the Right Provider
Different brokers have different fee policies. Many trading platforms will offer you specialized software, sometimes with mobile apps in case you want to stay in control of what’s going on with your currency pairs while on the go. It’s often a good idea to start with a demo account. You can practice with your free account until you shape a strategy that fits you best and know which charging model is good for you. Pay attention to terms and conditions such as leverage, i.e., the extension to your capital that the broker offers, but be careful not to abuse it.
Decide on Your Strategy
Strategy is not just about when to do what to your currency. Consider the following:
- expected profit level;
- risk tolerance (remember to never put at stake more than you can afford to lose), including leverage;
- the analytical instruments with which you can achieve your goal;
- appropriate methodology.
These often include automation tools such as stop loss and take profit. Both terms refer to similar concepts that are basic instructions that you as a trader give to your broker. They are related to when to sell currency in order to minimize damage if things have gone wrong or to secure an adequate profit in a favorable situation, respectively. Using the instruments can be part of your strategy to control your decisions better when things get stressful.
Don’t Let Your Emotions Get the Best of You
Emotional surges are inevitable when money is at stake. While it’s part and parcel of human nature to make decisions driven by emotions rather than reason, the trading business favors those who can act in cold blood. Sticking to a plan is a great tactic for a novice. This is not to say that altering your initial strategy is bound to be a failure; just make sure any modifications you make are well-weighed.
Check yourself for signs of panic or an adventurous rush before you choose to revert a decision previously taken. Paired with wise leverage management and clever automation, this superpower is often enough to profit from foreign exchange without being a pro.