So, you’ve heard that brokers make a lot of money and you are ready to try. You have also heard that forex trading is the easiest way to enter the world of exchanges and trading, and now you are going to test this claim. You have the money, what else is required? Actually, lots of stuff.
Trading is an occupation that requires knowledge and practice like all other jobs. Pilots and firefighters do not just jump on board and do their thing. They train, pass qualification exams, and then work under supervision, and only after it, they can work on their own.
Well, forex trading is not related to other people’s lives, so you do not need that much learning and tutoring. You can start right with the real account and see where it will take you. Yet, we can predict the outcome easily: you will lose your money and quit trading for good. So, to protect your money and the forex trading reputation, we will list things you need to consider and steps you have to take to actually get a profit. Call it a crash course in forex for beginners.
What is forex trading?
It is trading in foreign currency and making profits from the difference in rates and relative values of currencies that depend on wider economic factors. Like, you buy a certain sum in one currency and then sell it when you see that its price has grown. This difference between buying and selling prices is your profit.
But how can you sell and buy money? With help of some other kind of money, of course. This is why the basic concept of forex is a currency pair.
The market and its analysis
But it is impossible to pick the right positions and exit the markets in time if you do not have a bigger picture and do not understand where the trends will go. You will not be able to make any profit if you do not understand that any talks about leaving the EU impact the market of EUR negatively. News and scandals rule the currency markets along with profound economic trends and events.
The ability to ‘read’ trends on charts and predict where the price will go is called technical analysis. This analysis has its tools and clues as to what to expect.
The ability to open the newspaper, read the headlines and understand when the perfect storm on the marker will brew is fundamental analysis. OPEC will reduce oil production or boost it, the USA will strengthen partnership with Europe or withdraw from most programs – such clues mean a lot for understanding how prices will fluctuate.
Both kinds of analysis can be mastered through practice, so please, before you risk your money in real trade, open a demo account and see how you can foretell the future. When you see that your predictions come true and bring you virtual profits regularly, you are ready to play on the real field.
Decide on the position to open
When you understand the market and know what tools to use, you can choose wisely the currency pair to trade. Besides, you know what position to open – buy or sell, or just wait a bit till the trend takes a definitive shape.
A buy position is buying a currency in the expectation that its dollar price will grow over time.
A sell position is selling a currency. Accordingly, it means that you expect the dollar price of this currency to decline.
The key to trading is closing the position just in time to reap benefits or minimize losses.
Mind the risks
Yes, it is impossible to guarantee that you will not encounter some kind of force majeure. There is always a degree of risk in any decision you make, so minimizing this risk and knowing how to counter it is a must for a trader.
When you trade with leverage, thus increasing your investment, you risk losing more money than you own.
Markets and interest risks are connected to some rapid changes that impact the prices of currencies. However, such changes rarely happen out of the blue, and if you analyze markets and trends regularly, you will be able to avoid these risks.
You also have the risk of a performer, that is, you may not react fast enough to close the position rapidly. So losses are inevitable.
A plan and a stop-loss tool
This is why you need to know the tools for minimizing the risk and losses.
One way is to have a trading plan that lists your goals, your assets, the acceptable level of risk, and your unique circumstances. The golden rule of risk is to bet only %2 of your available balance per each trade operation. The unique circumstances will remind you that what works for someone else will not work for you (and vice versa). This consideration will prevent you from using someone else’s plan without giving it a thorough evaluation.
A stop-loss tool is a technical break device inbuilt into your account that will stop the losses automatically. You set the point at which the position has to be closed immediately even without your command, and the system executes this action if the trend overturns and you start losing money.
A final word
After all, trading is not as hard as you can imagine, but you do need practice. Get a demo account, practice, analyze your mistakes, learn to read the markets and the trends, and then you will be ready to sail in a rough sea. Even the most experienced and wealthy traders were beginners and started with dummy accounts. No one is born a master trader, after all.