Forex is a more complex market than stocks, given the sheer volume of transactions that takes place on a daily basis. As a consequence, trading in this market is innately riskier. However, there is hardly any gain without some kind of risk. And the same goes for Forex trading as well.
To those who are new to Forex, all the technical jargon can get pretty overwhelming. However, this brief Forex beginners guide is encapsulating all the fundamentals that every newbie should be aware of in 2020 before they start trading foreign currencies using their real money.
Tips for Beginners Trading in Forex
The following are some basics that can help those taking baby steps in Forex trading.
1. Get Familiar with the World of Foreign Exchange
To put it simply, Forex trading means buying and selling of foreign currencies. However, that is just the starting point. One must put time and effort to delve deep and find out everything that there is to know about the market.
Knowledge and information about the market make it clear that the system is not that complex as it may seem on the surface. One can easily find numerous training courses online, where fundamentals of Forex trading, along with trading strategies, plans, tips, and psychology are taught.
2. Decide What You Want and Make a Strategy
Trading without a plan almost always leads to disaster. The best way to mitigate the risk that accompanies Forex trading, or even stock market trading for that matter. To forge an informed strategy, you are required to take into account- your profit objectives, level of risk tolerance, and assessment criteria.
Based on these considerations, you can formulate and follow a trading methodology, that makes the most sense for you. The next step is to stick to this plan no matter what. Each transaction must be in alignment with the plan.
3. Pick a Suitable Broker and Trading Platform
Even though it is not strictly speaking a trading tip, it is an extremely relevant point that every new entrant in the Forex arena should keep in mind. One must go through a list of brokers, vetting them and reading up reviews online about their service. This basic legwork would save you from hiring terrible broker services.
It should be ensured that the broker is licensed, trustworthy, and is compatible with your trading approach/style. The same kind of research is necessary for the broker’s trading platform as well.
For instance, if you prefer trading off Fibonacci numbers, but the platform is unable to draw Fibonacci lines, you would be stuck, even if your broker is pretty good. Hence, make sure both the broker and his platform are in alignment with your trading style.
4. Test the Waters with a Demo Account
It may take a while before anyone can get used to the fluctuations that occur in currencies and how profit can be made by trading in a particular pair. This is why practicing with a demo account is a preferable approach. With a risk-free demo account, one can test the waters, gradually transitioning to the real deal after getting familiarised with the system.
Find more about how you can start trading money in Forex here.
5. Accept the Risks
A fundamental aspect of trading, be it stock market trading or Forex, is the existence of risk. This means you must separate the money you have set out for trading, and only keep that in your trading account. Under no circumstances, should you be depending on your trading money to meet your day-to-day expenses. Money in your trading account should be additional, separate from what you use for your regular expenses. In this way, you would not only limit your risk from the start, you would also be psychologically prepared to cope with some losses.
6. Know the Level of Liquidity
To trade successfully in any specific currency, or to have the option of exiting from the position, liquidity is incremental.
Two variables are principally responsible for deciding the liquidity of a currency or pair:
- Depth: It is essentially the volume of trading transactions that are taking place in the currency and how much those transactions are worth. The more depth a currency has, the bigger can be the quantity of the trade.
- Breadth: Basically, it is the expanse of the interest in a particular market or how widespread the currency is being traded.
A currency with both good depth and good breadth has good liquidity. Therefore, provides the trader with better flexibility regarding entering or exiting their position. Below are a few of the highly liquid currencies:
- USD (US dollar)
- EUR (euro)
- JPY (Japanese yen)
- GBP (British pound)
- CHF (Swiss franc)
- CAD (Canadian dollar)
- AUD (Australian dollar)
- NZD (New Zealand dollar)
Learn more about liquidity in the Forex market in this very educational article.
Hopefully, you will find the above tips helpful as someone who is entering the arena of Forex markets and trading. There is a lot that you will discover on your journey of learning about it. However, the above tips would serve as a good starting point from where you can begin your Forex trading adventure.