What Do I Need to Be Aware of Before I Start Trading Forex?
Forex profits are real. Those who trade thoughtfully can turn their knowledge into cash. Every day, this market sees spectacular volumes. Close to 6 trillion US dollars circulate between organizations and individuals. In the past, the currency exchange was only open to banks, hedge funds, and other major players. Today, it is a tap or a click away. Here are the main things you should remember.
- Any Trends Can Be Lucrative
Currency rates are always changing. As a trader, you may benefit from upward and downward trends. This is an important advantage of this market. You can use technical or fundamental analysis to predict future changes and open positions accordingly.
Suppose you trade the EUR/USD pair. If you expect the Euro to gain value, buy more lots. Once the price grows, you can sell and cash in the difference. If you think the Euro will lose value, sell the instrument while the price is high. Later, you can buy back more Euros for the same amount of US dollars.
- Trading Is Risky
Trading will never be risk-free. This is true for any investment. You can deposit money into a savings account, but the interest will only cover inflation. High-return/low-risk schemes do not exist. Those who offer incredible zero-risk profits are conmen. Reliable brokers like Forextime give you all the right tools, but it is your task to use them properly.
Luckily, traders can limit potential losses by using proven strategies. They should set Stop Loss and Take Profit for any position regardless of their confidence in its result. This way, you always know exactly how much is at stake. Trades are executed automatically when the desired price level is reached.
Another way to hedge risks is through diversifying. Once you master currency exchange, consider adding other instruments. FX brokers in Nigeria give access to stocks, CFDs, precious metals, and more. The more different assets – the lower your overall risk level.
- Do Not Rush It
Newbies may feel the urge to delve into live trading immediately. This is a recipe for disaster (or rather, financial devastation). Take advantage of all training opportunities like trading tutorial videos and devote time to thoughtful practice. Demo accounts are free and easy to create. All you need is to fill out a simple form. Your broker will generate a login and password immediately.
- Not All Sources Can Be Trusted
Forex has been thoroughly researched, so there is no shortage of information. However, not every ‘guru’ can be trusted. The Internet is full of amateurs posing as experts. Look at the speaker’s background before following their recommendations. The most popular Forex channels on YouTube are run by distinguished professionals who share truly valuable insights. Consider this Forex trading tutorial to learn the basics.
- You Will Make Mistakes
Missteps are inevitable. Traders should learn to accept their failures and learn from them. It is impossible to have winning trades all the time. Even experts lose, at least occasionally. The key is to analyze your shortcomings and incorporate those lessons into your strategy.
Emotions are your arch enemy. The worst thing you can do is start chasing losses. If a trade fails, stop. Take time to analyze the underlying reasons. Why did you fail, and how can you avoid such errors in the future?
- Know the Perils of Volatility
Some pairs are more volatile than others. This means their prices change more dramatically. For example, exotic currencies often represent unstable economies. Their values may shoot up or collapse quickly. The wider the range of profits – the more you can potentially gain.
However, losses can also be dramatic. Thus, stick to the currencies you understand best. Sometimes, it is better to make a steady but modest profit. Volatile instruments should be traded by those who are knowledgeable about their nature.
- Use Leverage Carefully
Trading on margin is an attractive option. The broker lends funds to increase your purchasing power. This way, one may open positions worth $10,000 having just $100 on balance (1:100). Generally, the ratios range between 1:25 and 1:2,000 depending on the broker, the account, and the instrument. Still, leverage is always risky. Traders who seek high returns should remember that risks are also ramped up in this scenario. You may gain 100 times more than you would otherwise. At the same time, a failed trade will wipe your deposit.
Everyone Needs a Strategy
Forex trading must be grounded in logic and knowledge. Never attempt to trade without a system. Think over each position. Use proven strategies and stick to them. As you gain experience, you will develop your own approach. The key is to make trading consistent.