Forex Trading is the exchange of currencies; buying a currency while selling another. The FX or Forex market is the most traded market, perhaps because the markets are open on the 24-hour basis, so regardless of where you are, or what time it is, you can jump on and trade.
While investment is an opportunity, trading does involve risk, as the market is affected by numerous, sometimes uncontrollable factors, such as interest and inflation rates, economic performance and political instability. Here are some of the FX trading basics to help grasp the world of FX trading.
- Know yourself, your goals and your risk tolerance
Before even beginning venturing into the trading world, have a goal of what you want to achieve. Analyse how much time you can dedicate to trading and figure out your risk appetite and weigh up the risk/reward ratio. Don’t want to bite off more risk than you can chew.
- Small losses are okay
You can’t go through trading and not experience losses. Don’t get down and constantly count the small losses. Rather accept it and ensure that no big losses occur. For example, shield yourself from any major loses by only leveraging (the money of investment to the actual value) your trades to a maximum risk of 2-3%.
- Focus on single currency
If you’re starting out or trading part-time, it’s hard to get to grips and monitor the whole market, so it’s good to divert your trading energy into not only the most widely traded pairs but also most liquid trades. Stick to what you know, and keep developing your trade skills meanwhile.
- Learn to control emotion
Going back to the first tip, if you know yourself and your long term goals this should be easier. Learn to reduce risk and stay calm. There will always be excitement and adrenaline flowing, but emotion is a trader’s worst enemy. Stick to a calm and logical approach to trading.
- Constantly analyse performance
Trading is all about analysing probabilities. By analysing your own performance, you can monitor mistakes you’ve made, what works and what doesn’t, but it also means you can discover certain patterns with timeframes.
There is no bulletproof method to trading, the trick is to make the losses so mild that they barely affect you.