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Forex trading is the buying and selling of foreign currencies using the fluctuations in exchange rates to make a profit. You may already be familiar with these movements on a much smaller scale if you’ve ever exchanged money for a holiday abroad. Forex can be traded like stocks and shares with one big difference: it’s generally easier to buy and sell than with other types of online trading.
With an average trading volume exceeding $5 trillion in a single day, it’s easier to find a buyer when you’re selling and vice versa compared to other markets. Though this isn’t always the case and it can still be a bit tough when it comes to currencies that aren’t traded often. The forex market can be daunting to the beginner, so this article highlights ten steps that’ll help you get started.
Have a clear goal
Before making any trades, it is essential to take the time to think about what the purpose of trading is for you. For instance are you looking to generate extra income or saving for a pension in 25 years, these are two very different goals that might require different trading styles to achieve these aims.
Understand your tolerance for risk
Forex trading, like most forms of investment, carries risk. Your attitude to these risks determines what kind of trading strategy will feel most comfortable to you. Know what you can afford to lose before you start and make sure your appetite for risk ties in with your goals.
Choose and trading style and stick to it
Making decisions based on intuition may initially be successful but is unlikely to be profitable long-term. There are many different strategies out there; do your research and choose one based on the market conditions and your preferences. If you see the system is no longer effective, take the time to refine it.
Having the right broker is essential
It should be evident that choosing a regulated and reputable broker is very important to your success as a trader. However, what is sometimes neglected is that the policies and platform of the broker must match your goals and level of expertise. Read reviews to find a reliable broker that suits you.
Practice with strategies
Once you have both your strategy and your broker finalised, make sure that you’re comfortable by testing it under a simulated environment before jumping in with real money. You may find that your initial strategy doesn’t work as well as you expected; now is the time to ensure everything is as optimal as possible.
When starting, you could focus on a single currency pair, usually either your country’s currency or one of the most widely traded pairs. This allows you to master things one step at a time rather than risk taking on too much at once. In this vein, larger accounts do not necessarily allow for larger profits.
Keep your emotions in check
Emotions are a natural part of life, but unfortunately, they generally tend to hinder rather than help the trader. Greed can lead to overexposure whereas fear can cause paralysis. One of the best assets you can have in your trading career is a methodical and detached approach. Part of this is learning to live with small losses- money that you are willing to lose.
One trick is to think of the money you are using for trading as holiday money; once the holiday is over the money is gone. In other words, treat it as money that you’re willing to spend/lose. This approach should help you to deal with losing small amounts of money without panicking.
Keep it simple
If you know what you’re doing and understand both the positive and negative potential consequences, you can avoid being led by your emotions and keep to best practice. The most definite sign of this is being able to explain and defend your strategies to someone else.
Study your past experiences
Ensuring an analytical approach to trading also extends to what happens after a trade has been made. Keep a diary where you record not only the practical details such as prices but also any emotional reasons for doing what you did. This analysis of your successes and failures will help you discover what works and what doesn’t. Objectively analysing your trades will help you trade in the future according to your system rather than your emotions.
Persistence is key
It takes time to learn new things and sadly, you most likely won’t become a millionaire in your first week. Therefore, you must be patient in developing your skills as a forex trader. Giving up when you’ve only just started is the best way to ensure you don’t acquire the skills and experience to trade effectively. The learning process is ongoing, and even experienced traders make sure to improve their skills over time.
Understanding your limitations and practising consistently using the steps outlined in this article should make your first steps into forex trading as successful as possible. Good luck!
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