If you are planning to build a profitable forex trading career, you should be aware of the following things. The following facts will surely help you to understand forex trading business.
The forex trade is among the largest financial markets on the planet with a daily turnover that surpasses $7 trillion in global currency exchange. Even though there`s a lot of money to be made in forex and endless opportunities, forex trading is a double-edged sword that should be handled with care. The trade can make you rich, and at the same time turn you into a pauper.
This is because despite the extensive nature of the market, it`s surrounded by a certain amount t of mystique, and there`s no single formula for trading successfully. A perfect analogy would be to think the forex market as an ocean and traders as surfers. To successfully navigate the storms, waves and avoid sinking, you need talent, balance, patience, and proper gear.
In this article, we shall provide you with all you need to navigate the murky waters; we shall provide you with nine things you should know before starting forex trading career.
Forex Trading is not a get-rich scheme
Yes, the above statement sounds a bit cliché. However, similar to any other business model, forex trading will not make you a millionaire overnight. In fact, if you`re getting into trading with the intention of making a kill within a few months, you should reconsider your decision. Contrary to what most of the brokers tell you, forex trading is not going to convert your measly $10,000 into $1 million.
However, this is not to mean that forex trading is not a worthwhile endeavor; after all, there`re many traders successful traders out there making a living from this model. The only difference is that they`ve mastered the art of trading, are principled and have slowly developed their wealth over time and increased their account to a level that can create a sustainable income.
Understand risk tolerance and hedging techniques
Forex market carries an inherent risk of crashing, which is referred to as systematic risk. The systematic risk can be caused by an array of factors such as stock market crashes, subprime crises or interest rate hikes.
With the forex options, you can minimize your loses and increase your winning probabilities by investing in multiple currency pairs at the same time. Additionally, you should know how much to invest in each trade and define your risk tolerance as part of your trading plan.
Remember that you can only become profitable in forex if you only have a win-loss ratio of more than 50%.
Be an Information Sponge
To be a successful forex trader, you need to be a data junkie. This is because currencies are extremely sensitive to a variety of factors, all of which are intertwined. When thinking of the different world currencies, think about a spider web; any movement in one area leads to the vibration of the whole system.
Therefore, if you want to perfect your trading, you better brace yourself to studying inflation rates, GDP of different countries, political climate, change in foreign trade policies, wars, elections and many other factors, which affect forex market.
In addition to that, you also need to learn the forex market lingo. You should familiarize yourself with terms like spread, pips, counter currency pairs, and even learn how to interpret charts.
Brace yourself for disappointment
Yes, forex trade is not the faint-hearted or for the risk-averse. Also, it`s not a passive or auto-pilot business model. Forex trading is for risk-takers, who love doing research, analyzing data and trading at odd hours.
In the international market, volatility can be extremely high, which means that you need to be mentally strong to see your trade plummet one day and skyrocket the next. On a lighter note, if you throw up on a roller coaster, you should reconsider your decision to enter the forex trade.
All brokers and charting platforms are not created equally
Before you decide to follow a forex signal provider, forex broker or invest in a trading software, you should be aware that they`re not created equal. Many of the brokers do not provide their clients with most pertinent charts for making the trading decision.
For many trading newbies, the chance that they may be looking for a relevant or accurate may not occur to them.
Learn to Trade Using a Demo Account
Before getting into actual FX trading, you need to trade using a demo account. The demo account will allow you to get familiar with how the platform functions, how to execute trades and how to set up the charts for your analysis.
There`s No Trading Formula
Unlike other business models that require you to follow certain guidelines or rather steps to achieve success, forex trading is all about probability and possibilities. This is to mean that no unique or best formula will keep generating success again and again. Remember that each currency pair is different, so will have a different formula.
Successful trading is not about being “right” or having high winning percentages
The definition of the term success is quite subjective. When it comes to forex trading, many new traders think that success is only attributed to winning every trade. However, this could not be farther from the truth.
The real success in FX trading is about having small amounts of losing trades, or rather containing and minimizing your trade. It also depends on capital preservation and risk management skills. Once you focus your strength on controlling your risks and maintaining your losses rather than avoiding them, then you`re on the right path towards FX trading success.
By using this approach, you`re more like a risk manager- a more useful way to think of yourself instead of a speculator or trader.
Be Aware of Risks
Finally, it cannot be stressed enough that FX trading carries a high level of risks and may not be a suitable endeavor for everyone. Before you decide to dive in, carefully consider your investment options and objectives, level of experience and your risk appetite.
Always be aware that can sustain a loss to some or all of your initial investments, and just like gambling, you should never invest money you cannot afford to lose.
Forex trading is a model that allows many investors to earn an extra income, and it`s fast becoming a way that allows many people to make their entire livelihood. Additionally, it`s also a great hobby for some.
Ultimately, though, FX trading is a supermodel, and if you have the money and courage, you might just score. And if you wash out, well, you`ll always have the experience. How far you can take will depend on your risk appetite, willingness, goals, and skills. If you`ve been thinking of FX trading for a while, it might just be a great time to get started.