So, you have done your research on the Forex market, and you are ready to start trading Forex. Congratulations! Now, take a deep breath, because you will discover new worlds and opportunities. It’s easy to get overwhelmed by all the options, strategies and tools available. The good news is that you can get started right away with a few simple steps.
Here are 10 beginner trading tips:
- Researching Brokers
The Forex market is traded “between banks,” meaning there is no central market for trading, such as the stock market. So, you need to choose a Forex broker to help you carry out your trading activities.
- Open a Demo Account
Many brokers allow you to open a demo account with virtual money. Since you are not doing real funds, this is a risk-free way to evaluate the brokerage company’s services and trading platforms. You can also test your trading strategy before depositing funds into a live Forex trading account. Please note that these demos usually end after a certain amount of time.
- Understanding Commissions and Spreads
These two types of pay are how the broker makes a living. If you pay a commission to the broker, you may pay more than a certain percentage of the spread (the difference between the bid and ask price of a Forex pair). Many brokers make money with a wider spread than they charge a commission. Ask about how each of these expenses might impact your income over time.
- Understanding the Different Levels of Accounts
You can choose from standard, mini or micro Forex accounts. Your initial investment amount and risk tolerance will play a role in deciding which one is right for you. Many novice investors like to start with mini accounts, which allow you to trade using small lots of 10,000 base units instead of the standard 100,000 units of lots.
Mini accounts offer lower risk, but also lower rewards. The percentage in points (pips) fluctuates based on the base currency funding of your account and the currency pair you are trading. So, on a micro account, one pip is equal to $ 1 instead of the standard $ 10.
Once you’ve chosen the right one, an automated trading system can do a lot, even finding trades while you sleep. After all, the Forex market operates 24/5, so it’s humanly impossible to track every change by yourself.
- Create a Basic Trading Plan
You’ve heard the adage, “failure to plan is planning to fail,” and it couldn’t be truer on the Forex market. Your plan should contain three elements: entry rules, exit rules and money management. Entry rules determine when you will buy; exit rules determine when you will sell; and money management is concerned with the amount of risk you are willing to take.
While you are building your plan, keep in mind that many traders are attracted to the Forex market because of the tremendous influence it offers. Leverage is necessary, as many currency pairs usually move less than 1% per day. But the higher leverage also increases your potential loss per trade.
After you make a plan, stick with it. The system only works for you if you practice it.
- Develop an Exit Strategy
How long do you plan to be in this trade? If the answer is for the short term (a month or less), you will want to set profit targets accordingly. But if you are a long-term trader, aiming to hit your profit target in a few years, take profits gradually and allow volatility so you can keep trading to a minimum. Either way, set your exit point at a critical price level – either the company’s annual target, or more technical points like a specific Fibonacci level.
- Determine Your Risk Tolerance
In other words, decide how much money you can afford. This will have an impact on the length of your trade and the type of stop-loss you will use. If you are more conservative, you may tend to quit, and vice versa for those who are more tolerant of risk. If you are unsure, you can experiment with several trades on the demo account using different levels of risk and see how you feel about the results. Your risk tolerance can change over time, and you should try to stay within your comfort zone.
- Protect Yourself
Disciplined Forex traders always defend themselves by placing protective stop-loss orders on the market while they are trading. By doing this, you calculate how much you will lose before you enter the trade – and ensure that you don’t lose more than that. If the trading doesn’t work as you expected, you can recover without serious financial consequences.
- Remove Emotions From The Trading Process
Like any market, Forex contains uncertainty and can seemingly operate in a counterintuitive way. While that can be overwhelming, it’s important to remember the big picture. Don’t let fear, greed, or emotions cloud your judgment. Be mentally prepared to accept losses and learn from them whenever possible. Having a solid plan and a proven strategy will make you a reality and help you make disciplined decisions.
- Be patient
Forex trading is not a skill that you master overnight. No matter how much you study, the market always has something more to teach you. And if you are in the Forex market for the long term, you will find yourself learning even more. Consider starting a trading journal to track your results. Study them regularly and identify any problematic patterns so that you can improve your technique. With a little patience and persistence, you’ll take what it takes to succeed.