The global FX market daily turnover hit $6.6 trillion in 2020; according to research studies that represents a 40% increase in a daily forex trading volume over the last 10 years. So why has there been such a rapid increase? Well, for starters there are two big things going for this type of trading…
Due to the fact that this market is so vast and so regularly traded upon, it offers traders significant liquidity. This is the relative ease with which traders can exchange one asset for another; I.e. how easily traders can enter and exit positions. Not only does this liquidity provide fantastic maneuverability but it also creates the environment for lower transaction costs and even offers protection for the markets from unscrupulous price manipulation (as the market can easily cope with large increases in volume deliberately aimed at causing a price shock).
Trading Around The Clock
After the Bretton Woods agreement in 1971, the world’s major currencies were allowed to float freely against the other; meaning that the values of individual currencies vary. Central Banks need to make adjustments, corporations acquire and require different denominations through and for international trade. Then there are the intermediaries, the national banks, brokers, dealers, hedge funds all over the world in different time zones all wanting to swap currencies. To cope with this demand the currency markets stay open 24 hours a day and for the individual retail trader this means much greater flexability with your own life schedule and obligations.
Professionals who trade on the side find the Forex market much easier to combine with their regular 9-to-5, either getting an early start before their shift or popping the slippers on after work and getting to grips with global currency fluctuations.
So you can see why the Forex trading arena can be a very tempting place to cut your teeth when starting out as a trader; however it doesn’t matter how big or how long a market stays open for if you don’t have a clue what you’re doing! To start your journey as a Forex trader the right way, here are the 5 things you NEED to know when trading Forex
1. Minimising Your Risk
While everyone fresh out the gate is super keen to make some money from trading; you need to remember to pace yourself; this is a marathon not a sprint. Much better to go at a steady pace than run flat out and fall flat on your face. You’ve worked hard to save up that initial investment so you need to spend it wisely; try to preserve that initial capital by choosing and getting to know high probability strategies. Don’t tie yourself up in knots trying to learn them all; pick one or two reliable strategies and get to know them in detail.
Once you’ve perfected their execution, you can start adding to your strategy repertoire but, before then, trading with one or two reliable strategies will start yielding small returns and will steadily grow your pot of money. Realistically you never want to risk more than 1-3% of your trading account and you’ll need to make sure you understand how to calculate the risk of each trade that you place. To day trade successfully you not only need to identify solid short-term opportunities but you also need use tools, such as Stop Loss Orders, to protect yourself from going into freefall should the markets turn against you.
2. Keep It Simple (Seriously)
From Facebook relationship statuses to TV chef recipes; nobody likes it when it’s complicated. The key to creating a good Forex trading strategy is to keep it as simple as possible. Don’t add too many different indicators to your charts; this clutter will soon alter your focus and throw you off the true interpretation of the market data.
To properly prioritise which aspects of trading are the most important to your strategy, you’ll need to learn the skill of technical analysis. In this discipline you’re mainly examining trend lines, support and resistance lines and the relevant indicators to help make sense of your charts and to inform your trades. Just like strategies, whittle down your indicator options to the most useful and when you find a combination that works best; stick with it until you know the process like the back of your hand.
3. Consider Trading Software Solutions
No matter what level of experience you have at trading forex, you’ll need some software to help manage your ongoing trades. Although it might be tempting to buy FX robots – sometimes known as Expert Advisers (EAs) – we wouldn’t recommend investing in these. Although they can be helpful initially, it is often too hard for them to adapt and stay profitable when the market changes.
It’s also not uncommon for a start-up company to pop up overnight, start selling ‘unbelievably good’ forex robots that they’re so confident in they’ll even offer a money back guarantee, only for the company to disappear into thin air about 45 days or so into their business. Caveat emptor.
4. Do Your Own Research About Trading Accounts
When looking for a trading account that’s right for you, there’s a few key points to consider (at the very least). These are:
• If your preference is for a short-term trading account, you should look into spread betting or contract for difference (CFD) trading accounts.
• Pay close attention to the instrument or tradeable asset portfolios available, the execution models and the leverage (how much you can borrow) offered by the account.
• The best FX trading platform for beginners often depends a lot on the broker so you will definitely need to bear this closely in mind. At Trading College, we offer the Pro-Trading System, a powerful bit of software capable (among many things) of providing an FX trading system suitable for beginners and experienced traders alike.
5. Watch Out For The Trends
Some currency pairings are more so than others but the Forex market can be a very volatile one indeed so pay attention to what’s going on. Always remember to take market volatility into account when planning your trading moves so that you’re prepared and have a few outcomes covered.
It can be tempting, especially when you’re learning and everything is so new, to incorporate some elements of fundamental analysis into your technical trading. This is especially true when the commodity you’re interested in or have just started trading in is all over the news headlines and FT front pages however by the time the news cycle has got the word out then these market updates tend to be pretty out-of-date or already discounted. Even if you personally consider an asset to be overvalued, the price may still be inflating and you can get burnt. Focus on what you see happening right now in the market, not something that your gut is telling you will happen sometime soon.
The only guarantee that news promises is an increase in interest and therefore volatility; so sound advice when just starting out is to ignore the news bulletins or company reports, analyse the technical data and stay true to your chosen strategies. For now at least, stay well clear of fundamental analysis.
So there you have it, 5 pearls of wisdom to kick start your Forex trading journey; may it be prosperous and long. There are literally hundreds of available markets in this branch of trading so you are sure to find opportunities in many different pairings, no matter how niche, and trends that will fit your Forex trading strategy like a glove.
If day trading sounds interesting to you, then please remember to check out Learn To Trade Online; it’s a one day training course where we’ll be covering day trading, swing trading and what you need to become a trader with much greater precision. Due to COVID they are currently held online but we also go all over the country so please check out when the next available dates are and I look forward to seeing you, either over the webcam or in the flesh.
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