Forex stands for Foreign Exchange – a marketplace where you can exchange currency around the globe and achieve a sizeable profit.
Most people don’t know much if anything about the exchange, and are therefore at a disadvantage. In fact, most Forex traders operate with losses and don’t actually see the return on their investment they were hoping for.
If you are looking to get into Forex trading this year, there are some basic rules and principles to stay on top of – but the most important piece of advice anyone can give you is to always keep learning, always keep exploring, and never stop improving your knowledge and expertise on the market, because the practices that have worked yesterday may not work as well tomorrow.
Here are some tips to get you started.
Find a broker
The first thing you will need to start trading is a broker. Brokers are companies that facilitate the purchase and sale of foreign currency, and they come in all shapes and sizes, and not all of them will be trustworthy. Brokers need to have a license to trade, but you also need to look out for their reputation – as some may only look good on paper.
You will need to take several facts into account when choosing a broker, and you can read up more on the subject here or here.
Determine your risk profile
Forex trading comes with its own risks and potential profits, and you need to be prepared to lose. However, you also need to be prepared to win, and in order to do that, you will need to figure out how much risk you are willing to take.
Do you want to be very aggressive, or are you looking to play things safely? The answer to this question will determine the way your strategy plays out.
Come up with a strategy
There is no right and wrong here – and the reason you are defining a strategy in the first place is to be prepared for the kinds of situations that are likely to arise. You don’t want to leave it to yourself in the heat of a trade to make the right call – and you don’t want to be doing things on a whim and without any rhyme or reason.
Your strategy should be based on the currency pair you are trading in, and the market you are looking at. A certain strategy might work well for one pair, but be completely fruitless for another, so you will have to keep working on it.
There are two rules here you should always follow:
- Only invest what you can afford without a loss impacting your current standard of living.
- Diversify your investment as much as you can, and don’t tie up more than 20% of your investment in one market (no matter how lucrative it seems).
Set a stop loss and a take profit
There are two kinds of orders you need to set, no matter the currency pair and market.
A stop loss is an order that defines the closing price of your trade – a trade will close at this level, even in your absence. In other words – this is your limit, the number you don’t want to go below, and your safety net. It will ensure you never lose more than you have limited yourself to lose.
Take profit is a frequently used order in the world of forex – it allows a trader to close at a certain position automatically when the prices have reached a certain level. This is where you make your profit.
Bear in mind that you need to adjust these orders to your risk profile – and examine how low or how high you actually want to go.
Keep up with the market
Keeping up with any and all market news is the essential key to success – and markets are driven by political and world events, or the predictions of these events. Staying on top of them, even if you make your trades based on charts and analysis, is vital.
Even if your technical strategy is working well, you should still keep an eye on market news before you place your orders, as current events can often cause fluctuations a chart cannot predict.
Keep up with the industry
You should also devote some time to reading the latest Forex trading tips and news, as you may get additional ideas to develop your strategy from these sources. You don’t need to test out moves you don’t believe in yourself – but you should know what your peers in trading are saying, and take these rival strategies into consideration when planning out your own.
There are trends in trading like there are trends in fashion – and knowing what a whole host of other traders (especially those just getting into the game) are more likely to do will give you a significant edge.
Try not to overtrade
Overtrading happens when you see opportunities to make money where there are none, which will cause you to put your investments at risk and lose.
You can overtrade either by trading too frequently or by trading with too much volume. In short, you get dazzled by the opportunities and forget that you don’t need to miss a lot in order to make a hit. There is nothing wrong with waiting a day or two for the right opportunity to arise. Your money will be just as able to provide a return on investment as it is today.
Always keep your cool
Finally, one more piece of advice: never trade when you are not completely calm.
Whether it is excitement at the prospect of a great coup, a need to blow off some steam, impatience at not having traded for a few days – don’t look at the markets unless you are calm, collected, and ready to make logical decisions. The market is not about the emotion (no matter what Hollywood might try to tell you) – it’s about logic and reason, so use them when making your decisions, and leave your ego aside.
Final thoughts
In order to become a successful Forex trader, you will need to put in a lot of hours and get as good at the game as you possibly can. Be prepared to lose, but plan to win – and remember that the market is usually a decent reflection of the state of the world.
