In its simplest of terms Foreign exchange trading (also known as FX or Forex Trading) isthe changing of one country’s currency to another. For individual investors, the FX market offers the opportunity to profit from foreign currency movement – by buying a currency with another and predicting the direction of the changes. Traders don’t actually need to buy the currency but rather involves contracts for amount and exchange rate for currency pairs, with neither side actually intending to action the contract, i.e. physically buy the currency.
Trading is all about probability and prediction. Anyone can trade now days, but not everyone is successful. Before you begin trading, you need to consider some fundamentals first to become a successful trader.
The first step before trading is analysing your markets – to be able to predict as well as possible.It’s important to understand the factors that influence currencies, so consider things like the political state and economic stability of the country. Education is a common factor for all beginners, so research is vital. Knowing currency pairs and investing time into that research to develop a plan or strategy will save you money later.
When starting to trade, many beginners get excited, adrenaline may take over, but it’s important to adhere to your set goals and to your limits. This is another factor that is widely overseen. Stick to logic and remember to take emotion out of trading decisions. There will always be losses, but don’t get caught up in ‘revenge trading’ in order to make up for a small loss, because it will end up in a loss bigger than it should have ever been.
As a beginner initially, stick to trading two currencies and not take too much on. Take time to study and build confidence. FX trading involves substantial risk of loss and it is not suitable for everyone, so think carefully before starting.