Forex is the biggest traded asset today at more than trillions worth of dollars traded every single day. It is not surprising to see more and more people starting forex trading. The thought of just getting a small percentage of one trillion is enough motivation. Imagine how it will change your life. You can buy a new house, get the latest car model, pay off your debts, and travel all over the world.
But the truth remains that trading forex is risky. While there are people that gained wealth through forex, a lot more lost their hard-earned money. It is especially true for beginners in trading. The concept of forex involves trading the value of currency pairs, one currency gains from the loss of the other. So, in every trade, there is a winner and a loser.
Everyone loses money in forex trading. It does not matter if you are starting or have been trading for a long time. A seasoned trader will suffer losses when the market goes down. It only takes a few seconds to a few days to realize it. But there are ways to increase the chances of getting profit and minimizing the loss. We are listing some helpful forex trading tips for beginners here.
- Do a self-assessment. It is a vital first step to see if you are ready to start your journey into forex trading. Check how much money you are willing to lose. You must only trade money that is on top of your monthly budgeted funds. Also, never use money allocated for your retirement or a planned project like a beach-themed wedding or a three-story house purchase.
You also need to identify your limits and risk tolerance. How much are you ready to lose for each trade? Many traders use only 1% to 2% of their initial deposit per trading position. It means that for a $10,000 capital, your limit is only $100 to $200. This value is also your upper limit on losses per trade. In case the market swings opposite from your expectations.
Another important consideration is your time. How many hours are you committing to spend on forex every day? Your answer will influence the type of trading strategies you can use. Are you going short or long? Will you be a day trader, scalper, or swing trader? The value of currencies can move very fast, and uptrends can quickly dive in seconds or minutes. So, at the start, set a time and follow it.
- Be informed and realistic. Do some reading on currency pairings and choose the pair that gives you more confidence. A few advanced traders will advise you to stick to the currency of your home country. It will be one-half of the currency pair. The reason is that any movement will have a direct effect on you. And you will be more interested in looking at the trends. You can also choose the most popular currency pairs as an alternative. It is a good option since these currencies are widely traded and will give you good training on reading market movements. And because many people are trading these currencies, liquidity is not a problem. It means buying and selling of the asset will be fast.
For beginners, you should start trading with only one currency pair. It will give you focus and will build your confidence. It will also help you to manage your time better since currency trading requires many hours. Activities such as watching the currency pair charts, following the trend, and looking for significant market forces will take time. It is easy to expand to more currency pairs when you have developed the skills and are confident with your trading strategies.
- Create a trading plan and stick to it. At this stage, you must identify your trading goals and the timeline for achieving these goals. For example, do you want to have a 60% success rate in your trading activity that gives 10% profit by the end of the year 2021? You must also clearly state your benchmarks for success and failure. Is a 50% profit to loss ratio a success or failure for you? Remember that trading is risky, and you will expect to lose sometimes. It will also be easier to close a position if the risks are too high by sticking to your trading plan.
When starting with forex trading, consider the basic rule of trading with the trend. If the currency value is increasing, you buy it. But if the value is decreasing, sell it. At what point of the curve do you start buying and selling? That is for you to determine. The exact level that will trigger your decision to buy when you see the value moving up should be part of your trading plan. The same is true for the downward trend.
At this point, a risk management strategy should also be in place. Think of it as your emergency brakes when the upward and downward trends go out of control. Specify a stop-loss level which is the maximum point of a downward trend where selling becomes a must. There is also a take-profit level, which is the opposite of a stop-loss level.
- Select a broker that aligns with your goals and personality. Unlike stocks, forex doesn’t have a central and physical location where the trading happens. So, unless you find a brokerage firm, you will not be able to trade in forex. They offer the platform, leverage, relevant updates, as well as learning materials to help you succeed in trading.
But there are a lot of brokers in the market today. And not all are legit companies. So, it is important to research to ensure that you deal only with brokers that will not walk away with your money. The first step is to check with the local SEC and other regulators if the broker has the authority to participate in forex trading. Next is to look for reviews and testimonials to get the reaction of clients and users of the platform.
After finding a regulated broker, you will need to study the trading platform. Brokers have different trading platforms with many functionalities. Check them out and pick the one that matches your trading style. Forex trading happens in real-time, so a system with no lag and works on multiple devices will be very welcome.
Leverage is another factor to consider. Leverage is the number that your money will be multiplied with to get exposure to the market. The higher the leverage, the greater your profits will become. But it also increases the risk of losing your money faster. Start with a low leverage program, gradually increasing as you gain more experience.
Support is another vital offer from a good broker. It should have customer care specialists that are ready to answer your queries any time of the day. Having this in place says a lot about how they treat and value their customers. In addition, the broker should have news alerts and regular updates to help traders make sound forex decisions.
Another vital feature of legit brokers is the various learning and teaching programs, especially for beginners in trading. Look for interactive videos, webinars, and reading materials. Some even have streaming of live trading sessions that will be a great immersive experience for traders at all levels.
- Practice and continue to develop your trading skills. Now that you have your trading plan, strategy, and broker, you can begin to trade. But before jumping in with your actual money, take advantage of the demo account offered by your preferred broker. It is a free and no-risk way of trading using market scenarios. Some brokers will give you as much as $100,000 worth of virtual money to spend in your chosen currency pairs. Invest in the EUR/USD currency pair, identify triggers, and buy and sell based on the guidelines you set on your trading plan. Look at the results and fine-tune your strategies until you find your winning action plan. If everything else fails, don’t be afraid to try a new method. Replicate the style of advanced traders. It gives you time to rethink since you are not spending your actual money.
Analyze the scenario and identify which market forces have the most effect on the forex value. If you backtrack the trends and see which news and events trigger the increases or decreases, you will be better at trading. It will also help you to see which factors directly affect movements in the currency of your choice. So, next time another similar news or event comes up, you will know if it will likely move the market value of the currencies.
- Keep your emotions in check. Trading decisions have to be influenced by reason and not by feelings. Since forex trading is risky, you will lose some trades. But if you keep on losing money, it may be hard to control your emotions. A mixture of excitement, greed, and fear affects the judgment of a trader. So, the recommendation is to start with small amounts when trading, so the risks are also kept to minimum levels.
Revenge trading is a reaction done by some traders where they go all-out to try to win back what they lost from a recent trade. It is a highly emotional response that closely resembles gambling. The reason people lose everything and go into debt is they try to win back what they lost, thinking that by increasing the bet, they will gain more. Sadly, this results in more loss.
- Take notes and review your past performance. We hear people say that experience is the best teacher. It applies not only in relationships and life stages but also in forex trading. The best mentors in forex will tell you to keep a diary. It is where you should write down all your good and bad trades. Identify the mistakes and success factors in your past trading positions. The key is to find out what works and what does not work in your chosen currency pair. Once you have this, it is easier to react to different market scenarios. And writing it down in a diary will show that you have discipline and the right attitude.
Keep your diary simple and easy to read. There is no need to be very technical or use professor-speak to show that you are good at trading. It is the results that matter. And the method and steps you used to get to those results. When documenting your past actions, avoid the tendency to over-analyze. Also, be honest and do not attempt to justify the failures. After all, a failure is a failure wherever you look at it.
Profits are also subjective. You must be realistic about this as forex trading is not a get-rich-quick investment asset. While it is true that skilled traders can gain wealth through forex trading, most small retail traders fail. Reports show that 2 out of 3 traders lose money on forex trading. In addition, everyone loses money here. Even advanced traders will have bad days where they lose their hard-earned money.
Forex trading is complicated. It gets influenced by the attitudes of the person and unforeseen market forces. Traders who lack discipline and have little knowledge of forex trading all fail. If you add to this the use of unproven strategies and reckless decisions, that is a formula for complete failure.
Understanding who can trade is also tied to the concept of profit expectations. Not all people can trade in forex. It includes low-income earners, underemployed and unemployed. Profit is the result of the amount of investment you pour in. If you do not have savings that you can afford to lose, don’t expect a successful career in forex trading. Experts suggest that a minimum deposit of $10,000 is required to begin trading on forex.
It is also vital to stress that forex trading is not a gambling activity. Forex is a serious investment that demands skills for success. If you want to get rich fast in forex trading, you will only be disappointed. To succeed in trading currencies, you will need to spend many hours in training and lessons. Familiarize yourself with the different trading strategies. Soon after, you must develop your trading plan and strategy. Improving on it every time you gain profit or lose capital. Finally, you will have to take the bold leap and start to trade your own money. Always be ready to use these three courses of action: apply, test, and learn. Pretty soon, you will discover that forex trading is a rewarding and exciting career.