Trading in foreign currency is a delicate balance where traders seek to benefit from fluctuations in the value of currencies against each other.
Unfortunately, many new forex traders approach the currency market the same way a gambler would approach a roulette table in Vegas rather than how a CEO would approach a business investment.
Though trading in currency shares some similarities with gambling, the two should never be confused or even said in the same breath.
To help the average beginner prosper in the exciting, highly profitable world of foreign exchange, here are a few tips and tricks.
Get an Education
This is arguably the most important tip any beginner should know. And just like in real life, forex education never ends so even the best and most advanced trader will always have something new to learn about the FX market.
There are very many sources of forex education. You can start slow at your own pace and convenience by accessing many of the free online tutorials.
For a faster learning curve, you can subscribe to any of the many forex education courses conducted by professionals.
Additionally, there are many books, websites, ebooks, journals, and articles that can help anyone interested in trading foreign currency.
Once you start learning the main concepts of currency trading through education, you should now put them into practice. This will prepare you for managing a live account when you are ready to trade.
The best way to practice is by using a virtual account, which is also referred to as a demo account, a paper account, or a practice account.
This is a forex trading account provided by online brokers to enable traders make trade decisions based on real live market conditions without risking any real money. With a demo account, you can develop a trading plan and profitable strategy and thoroughly test it.
Choose a Broker
Every trader needs a platform to use for exchange currency and forex trading platforms are provided mainly by online brokers. Your choice of broker has the capability of either building you or totally ruining you. The worst type of broker you can choose is one who fleeces clients and disappears with their money.
Apart from such thieves, there are also brokers in operation who don’t really have the necessary expertise to assist traders make a successful career out of trading currency.
These brokers may not be criminals and thieves, but they lack the capacity, ability, and resources to help you trade profitably.
Choose a broker who not only has the knowledge, experience, and expertise to guide you in your trades, but one who is close to the tier-1 financiers. This will help you get the best rates and the tightest spreads for your currency exchange.
Develop a Trading Strategy
We can do well by copying others but the best results come when we do what fits personal style. This is very true when it comes to currency trading. You have to be yourself and have a personal trading style that suits your individuality.
That way, your trades will match your personal schedule and your areas of interest. If you have a day job then it would suit you better to trade overseas markets that are open when you are at home.
If you have a deep interest in oil then you might be better suited exchanging currencies from oil producing countries.
You have a better chance of becoming an expert trader if you have a strong passion for what you are doing.
Learn Accurate Analysis
Depending on your chosen currency pair and your individual trading style, you will need to learn how to accurately read the market and predict future prices.
This is key to forex success as all your profits will come from accurately predicting future price direction for at least two currencies at a time.
There are two main types of market analysis and these are fundamental analysis and technical analysis. Most trading strategies require a combination of both types of market analysis.
Take time to discover exactly how to combine the different analysis methods for optimal results.
It is very important that you approach forex trading as a serious business investment. The first thing any focused business person learns is the need and importance for well-kept records.
Journal all your trades and every transaction and include your decision-making process in the records.
This will help you in future market analysis as you will continuously learn from your mistakes and build on your gains.