The foreign exchange market accounts for trillion dollars worth of transactions each day, creating a multitude of opportunities for regular Joes and Janes to profit from. But exactly what is online forex trading? And how does one profit from the market? These questions should be answered before even opening an account and sending trade orders. Here are five forex trading tips every novice should know. While they sound overused and unoriginal, these tips embody important concepts that all successful traders abide by.
You'll read a lot of material about how investors and speculators should accept the possibility of losing some or all of their capital. And while many people believe that they've accepted risk, it's usually a weak sense of acceptance. They do not truly embrace risk and are therefore devastated and stressed out whenever they lose. This leads to over-trading and opening too large position sizes that end in margin calls. While there is no specific way to truly embrace risk, a novice may start off by sticking to a plan with justifiable protective measures.
Find What Works For You
There are many strategies accessible to forex trading for beginners. Throughout the years, countless views and perspectives of how the financial market should be traded have arisen, thanks to Wall Street aficionados, top hedge fund managers, and prominent economists. Copying the trade ideas of a more decorated trader may seem like a good short-term strategy, but over time you become dependent of his/her ideas. If the trader suffers from a midlife crisis or just decides to leave it all and travel the world, your trades will suffer. Find a strategy that works for you by forward-testing and back-testing strategies and picking them apart.
Secure Your Account
A VPS server may cost money, but it pays for itself over the long haul. There are many reasons to use VPS hosting for Forex, such as enhanced security, scalability, and boost in latency. VPS adds a layer of security, which makes it far more difficult for malware and unauthorized users to breach your account. Your internet connection is also more stable when using a VPS provider. It can be stressful, if not costly, to lose your network connection mid-trade or when high-priority news comes in. You may miss out on good levels to trade from or be unable to close open trades.
Decide Which Pairs to Focus On
While macroeconomic forces encompass all currency pairs, short-term currency movements are influenced by different pieces of information and numbers every day. It can be overwhelming to know and keep up with inflation rates, employment and unemployment reports, and government turmoils of each and every currency in the Forex market. Instead, focus on one or two currency pairs, preferably major pairs since they tend to be more stable than exotics and crosses. By focusing on fewer currency pairs, you get to formulate better trade ideas and make more informed decisions.
Choose a Broker Meticulously
A broker will act as the middleman to your trades. If they cannot do their job well, your bottom line is affected. It's crucial that you find a broker that is regulated by a governing body, has competitive spreads or broker commissions, and can offer the technical tools to simplify your trades. Having a user-friendly and intuitive platform is a big plus for people who want to actively trade the Forex market. The number of available currency pairs you can trade is also worth noting. More pairs means more trade ideas and a greater sense of risk diversification. Many brokers now limit the currency pairs you can trade based on the level of account you have opened with them. Basic accounts will have fewer currency pairs to trade while premium accounts allows not only currencies but also other assets, like commodities and futures.
Trading the Forex market will not be an easy undertaking. It takes time and consistency to develop a profitable approach and mindset. If you are serious about turning Forex trading into a business, you'll need to commit time and effort in learning more about the industry. These five tips aforementioned should serve as a solid primer for more sophisticated concepts and strategies ahead.