The world of Forex trading can be very tempting, especially since an average of $5 trillion is traded every single day on the global market. Having said that, it’s easy to feel out of your depth if you try to get involved in Forex trading before you understand how it works. So, here are five things you should know about Forex trading before you go further into the market.
What is Forex trading?
Before we start looking at the five top tips for Forex trading, it’s important to understand what it is. Forex, or FX, stands for ‘foreign exchange’. The term ‘Forex trading’ basically means trading one currency for another on the worldwide market.
FX trading involves buying and selling currency on the global exchange, and speculating on the movements within the market, so that you can get the best prices for the currency you’re trading. Forex traders aim to profit from any variations in exchange rates, both up and down.
To help you start your journey as a Forex trader, here are the key things you need to know:
1. Minimise risk
While you may be keen to start making profits from trading, it’s important not to run before you can walk. To begin with, try to preserve your capital investment by picking and learning high probability strategies. It is always best to learn one or two strategies in detail and to perfect your execution of these, rather than trying to learn every one.
Never risk more than 1 – 3% of your trading account and make sure you understand how to calculate the risk of each trade you are placing.
Successful day trading involves being able to identify good short-term opportunities, while also protecting yourself through tools and techniques that minimise risk.
2. Avoid over-complication
When creating a trading strategy for FX, try to keep it as simple as possible. Don’t clutter up your charts with too many different indicators as they can reduce your focus and complicate your interpretations of the data.
To work out which aspects of trading are the most important to your strategy, you’ll need to learn about technical analysis . The main tools within this analysis are trend lines, support and resistance lines, and the relevant indicators. These will help in making sense of your charts.
While there are many different tools available, don’t try and use all of them. Instead find out which ones work best and learn to use them well.
3. Consider trading software solutions
Whether you’re an FX trading beginner or a professional, you’ll need software to help manage your trading.
You might be tempted to buy FX robots – also known as Expert Advisers (EAs) – but we wouldn’t recommend investing in these. They can be helpful in the short term, but it’s often hard for them to adapt and stay profitable when the market changes.
4. Do your research on trading accounts
When looking for a trading account suitable for FX trading, these are the things you should consider:
• If you’re opting for a short-term trading account, consider spread betting or contract for difference (CFD) trading.• Look closely at the instrument (or tradeable asset) portfolios available, the execution models and the leverage offered by the account.
• You’ll need to pay a lot of attention to the broker, as the best FX trading platform for beginners often depends a lot on the broker, and the best broker depends on the trading system you’re planning on using. At Trading College, we offer the Pro-Trading System, a powerful FX trading system suitable for beginners and advanced traders alike.
• Unless you’re interested in the conditions offered by Dealing Desk accounts, it’s a good idea to be cautious about them – rather than trading through the account, you’re often trading with the broker instead.
5. Keep your eye on the trends
The Forex trading market can be very volatile , so keep an eye on what’s going on. Take market volatility into account when planning your trading strategy to make sure you’re prepared.
Don’t be tempted to use fundamental analysis; market updates on news outlets or trading calendars tend to be already discounted or out-of-date. The only thing news promises is the possibility of volatility, so it’s a good idea, especially when beginning your FX trading experience, to stay away from fundamental analysis.
Whether you’re a beginner or an expert, it’s best to trade on what you see happening in the market, and not what you suppose will happen. Even if you consider something as overvalued, the price may still be increasing, so you’re better to trade with the trend than against it. There are hundreds of available markets, so you can find opportunities in many different places, with trends that will work with your Forex trading strategy.
If you’re looking to start Forex trading, why not come along to one of our Learn to Trade live courses and take your first steps to successful, profitable trading today.