Are you new to Forex? Thinking about starting Forex Trading? Well, if you are a beginner there are a few things you should understand before stepping into forex trading. On the other hand, if you are someone who is already into it, you can trade better with some of these tips on your side that you will learn further in the article. First off, let us start with getting you familiarized with Forex.
What is Forex?
Forex or Foreign Exchange or Currency exchange, how many ever names you call it, it all refers to one thing, The Foreign Exchange Market. It is a DeFi market where you can buy and sell currencies. There is no central exchange at work here. The buyers and sellers exchange currency directly between both the parties, at an agreed price. If you ever visited a foreign country or bought an item from another country, you more likely would have done a currency exchange. To pay for the items from other countries you have to make payment in their currency, for which you need to exchange your local currency for theirs in order to make payment. This right here is a simpler version of currency exchange.
But a lot of people don’t just exchange currency because they need it, but they do so to make a profit from the exchange. Did you know that the Foreign Exchange Market is bigger than the stock market and it indeed is the largest Financial market in the world? Nearly $6.6 trillion is being traded daily on Forex. The Foreign exchange market contains currencies from all over the world. And the trade here occurs in pairs. The first currency in the forex pair acts as the base currency and the second one in the pair, the quote currency. For example, In the pair USD/GBP, you will be buying USD(US Dollar) and selling GBP(Great British Pound). The Price of the pair depends on the value of the currencies in the pair. If the value of any of the currencies in the pair goes up or down, the price of the pair also changes accordingly.
The forex traders mainly make profits on the fluctuations of prices in the market. And there are a few things that could cause that, like, Central Banks, Economic Data, News reports, Market sentiment, credit ratings etc. If we keep discussing the things that one needs to know about the Forex market the list will go on and on. So let’s put a pause on the discussion here and move ahead to the tips you must know before getting started with Forex Trading.
Tips for Forex trading
Decide which type of trader you are gonna be
Yes, As simple as it might sound, this is the first thing you must do, when you want to be a Forex trader. You must understand your goals, where you want to go with this trading, what it is that you wish to do, or how you trade. All these things play a crucial role in deciding the type of trader you are going to be. Your trading style will have an impact on your risk profile and the attitude you approach the trades with. You can be a day trader or a position trader, as per your trading preferences.
Find yourself a right broker
Even if it is not exactly considered a tip, finding the right broker is very crucial if you want to become a successful trader. When looking for reputable forex brokers, you need to look for a lot of things like commissions spreads, initial deposit, regulation, customer service, the trading platforms that the broker use, ease of withdrawal/deposit, leverage, margin, what currency pairs the broker is offering, and how reliable, transparent and trustworthy, the broker can be. Remember, getting the right broker is a very important step in your forex trading journey and is the one you can’t afford to neglect. Also, the platform that the broker uses is also equally important. The right broker with the right platform could be the undefeatable match that can bring you success in your trading.
Preserve your Trading Capital
It is common that the beginners or newbies in Forex trading get all excited about making profits, that they don’t pay much attention to playing defence. It’s true, most successful Forex traders are the ones that played defence and acted at the right time. As the ones who are very excited about large profits, playing defence might seem a little unexpected for most beginners. But preventing a big loss is more important than earning large profits. The trades that bring huge profits, most of the time are packed with a lot of risks and going after them could lead to you losing most of your trading capital. So, to be a successful trader you need to preserve your capital.
Start Small and stick to your Strategies
Starting small is always a better way to prevent huge losses. When you begin your forex trading, instead of going after different trades at once, start with something you are familiar with, like your local currency, or the pairs that are traded widely. Make small trades and gain exposure. This gives you enough time to understand how the market works and come up with a game plan. People use several strategies in Forex trading. Do some research, find yourself a strategy that lines with your game plan and your goals, you can even make up your own strategy based on your research and your exposure to the forex market. Once you have come up with a strategy, get expert opinions, check if that strategy works and if needed make some changes. Then, finalise your strategy and stick to it and see how it works wonders.
Have control over your Emotions
For a trader, having control over their emotions is as important as any other aspect of their trade. Although emotions are the basic human traits, they could botch up your trades if you get carried away by them. The most common emotions in traders that could lead to their fall are fear and greed. An ample amount of any emotion, helps you make better decisions, but if the limit exceeds, that most likely creates a messed up situation. That applies to trading too. Having the right emotional balance could help you trade better. Knowing the positives and negatives of your trading strategies can help you keep the right emotional balance and might help in preventing panic situations.
Stay Updated and plan your trades
Staying up to date on the market trends and sentiment is crucial if you want to be a successful trader. Keep an ear out for any news that could cause fluctuations in the Forex Market. Analyze everything that could bring you potential profits, financial processes, currency trends, news reports. Keep researching, even though it takes up quite some time, it could bring you profits if you come across the right information. Learn more about spotting the trends and using them to your advantage.
All this research goes to waste if you don’t plan your trade correctly. Make a trading plan, apply your knowledge and strategies, be aware of potential consequences and think of the ways to react to them. Be ready with plan B if plan A doesn’t pan out the way you intended it to.
Foreign Exchange Market is the last financial market out there. With the right broker and platform on your side, you can become the successful forex trader that you wish to be. Along with that the above-mentioned tips, ample research, required amount of attention, your strategies and a few more of the above-mentioned tips here and there could do the trick and pave the way for your successful trading journey on Forex.