The world of finance continues to be shaken up with more and more financial instruments that allow smart individuals to spread their wealth over time. Apart from your standard stocks, another tried and tested financial instrument that stands strong to this day is foreign exchange.
Forex trading is the practice of trading and exchanging two different currencies in the hopes of making significant gains. It’s a popular financial instrument used by financial traders that prefer less volatile trading options as compared to stocks, crypto, and commodities.
Although forex trading is a lot safer as compared to other trading options, that doesn’t mean that there aren’t any risks anymore. These are still pretty much present which is why you should learn the right techniques to help guide you towards making better trades.
If you are a beginner, then here’s a good guide to get you started.
Pick The Right Broker
Before you even think about trading, the very first thing you should think of is the broker or the platform through which you can trade from. While they are all there to help you trade, some platforms give you access to trading features and fair transaction rates altogether.
Of course, you should also consider the security and legitimacy of the platforms you trade on as well. As there are many brokers available, you should consider your options thoroughly. Read through reviews online and only trade with trusted brokers so that your money stays safe in good hands.
What’s good about forex trading is that since it’s based on foreign exchange, the rates you are going to deal with are affected by current news regarding a country’s economy. For instance, good foreign investments can help the value of one currency positively whereas negative economic news has the opposite effect.
This means that staying up-to-date with news regarding the currencies you trade in is going to be beneficial. Now, keep in mind that no currency is volatile to the point that it will see a severe drop rate in 24 hours. Still, economic news does have its effect on a currency over time.
Prepare A Risk Management Plan
Like other financial instruments, your gains in forex trading depends on the risks you are willing to take. The higher the risks, the bigger your earnings. However, that doesn’t mean that you should carelessly trade until you completely run out of capital.
It’s always good to trade with a risk management plan in mind. Ideally, you’d want to stop trading when you reach a certain threshold of losses. This will prevent you from completely losing your capital, and will allow you to come back another day if one trading session isn’t doing you well.
Since this is your first time trading forex, it would be smart to start with small and manageable trade. This means starting with a small capital from the get-go. Try to test the waters and then develop your own trading strategy first. Forex trading is here to stay so try to be patient with it.
Starting small also means trading one at a time. Experienced traders engage in multiple deals at a time but that’s because they’ve already developed the skill set for it through consistent trading. Eventually, you’ll learn to engage in multiple trades too.
Concoct Your Own Strategy
While you can find many strategies online, these are only good at the start of your journey. Each trader has his or her own effective trading strategy because we all have different principles and budgets to adhere to. As you move forward, you should start finding a strategy that fits you.
Having your own strategy is a good thing because it caters to what you know as a trader. Aside from the budget, this also considers what you are capable of as a trader. This is why practicing and taking it slow is very recommended if you are a beginner in forex trading.
It goes without saying that practicing is a key part of your forex trading journey as well. The good news is that there are many ways to practice without having to risk anything on your end. You can do this through demo accounts on trading platforms that let you trade with virtual money.
Almost every trading platform offers this unique feature so you don’t have to look hard to find one. Before you trade with real money, make it a must to trade using a demo account first. Get a feel of forex trading. It’s similar with other forms of trading but since the instruments are different, it does take getting used to.
From the get-go, you might be tempted to trade only currencies you are familiar with. This isn’t a bad idea though. Doing this is good because you are at least familiar with the currency and you know how to take full advantage of it with what you know.
However, don’t limit yourself to these currencies as there are many out there that’s waiting to be explored. Sometimes, it’s good to keep a close eye on up-and-coming economies because they offer the best chances for growth and gains.
Avoid Being Too Emotional
Last but not least is the most common tip you’ll hear, regardless of what you are hoping to trade. Being an emotional trader is a bad idea. This forces you to take unnecessary risks and potentially put yourself in danger of losing all of your capital. As much as possible, stay neutral.
What does being too emotional mean? This basically means you let your emotions affect your trades. For instance, if you are on a good roll, being emotional means continuously increasing the amount of your trades because you are feeling too confident. We don’t need to tell you why this is a bad idea.
Forex trading could be the key to your financial success but keep in mind that it’s not an easy venture to get into. With the right practice and techniques, you can rise from being a beginner and become a seasoned forex trader.