The foreign exchange market (Forex or FX) – the largest financial market in the world with daily turnovers of more than $5 trillion (that’s at least 20 times bigger than that of the New York Stock Exchange) – can be quite intimidating, to the bravest of beginners.
With more than 50 currency pairs being traded daily in forex trading, it is just like joining a racing game where all other contestants have had experience for years. So, if you want to to start forex trading, where should you begin? What FX pairs should you trade? How do you compete against other traders?
How to start online forex trading
Don’t stress, this step-by-step guide is designed to help you get a head start. By the time you have finished reading it, you will already have a confidence-boosting base and knowledge on how to start forex trading right away.
Here are top tips to help you excel in the lucrative forex market:
1. Start with a Demo Account: Test Before You Trade
Always, especially when you are a novice forex trader, not start by risking real money in trading.
A demo account from every forex broker, allows you to put virtual money in a trading platform in order to start practicing.
You can use it to test forex trading strategies, understand forex market behaviour, and also get used to working on the platform.
You can make all of your mistakes in demo trading so that, when you feel confident and comfortable, you can then go to live trading.
Even professional traders will go back to the demo account and test out some of their new strategies before they apply it to live trades.
2. Learn the Basics: Understand Key Forex Terms
Here are some of the first terms you should know if you are thinking about forex trading.
– Currency Pairs: Forex deals in pairs of currencies. The first is the base and the second is the quote. For instance, in the EUR/USD pair, the base currency is the euro and the quote currency is the U.S. dollar.
– Pip: Pip means the minimum price movement of an FX instrument, usually the fourth digit of a price quote.
Spread: it is a difference between buy and selling price at one currency pair.
The quicker you learn the jargon, the more comfortable and confident you’ll feel reading forex trading materials or talking to other traders.
3. Stick to a Strategy: Discipline Over Emotion
Forex trading can get you hooked really fast; the market prices move all the time. As a beginner, the most common mistake you can make is being emotional with your trading. Don’t trade on impulse, use a strategy.
A good strategy should dictate what you are willing to risk, what bets you are willing to take on, and when to trim your trades or change positions. It could be technical, using charts to spot trends, or fundamental, such as looking for news on the economy or a specific company.
Above all though, it needs to be consistent. A good, disciplined approach will help keep you grounded when the market goes crazy.
4. Follow Market News: Stay Informed
Indeed, good forex traders keep tabs on world news to anticipate how economic events could swing currency values: as Reuters reported recently, ‘U.S. concerns about inflation drove the dollar higher against most major currencies’.
Following current news from authoritative sources such as Reuters, CNBC or Bloomberg will give you an early indication of what might happen on the market.
For example, if a central bank announces a hike in interest rates, the currency of that country is likely to strengthen. Being up-to-date with current affairs will help you make better trading decisions.
5. Manage Risk: Use Stop Losses
Risk management is the most important element in forex trading of all. Make sure you get a stop-loss on every trade you make. A stop-loss is an instruction that closes your position when a currency pair moves against you by a set amount. This acts as a safety net, stopping your losses from spiralling out of control.
A beginner should never risk more than 1-2% of his/her trading capital on one trade. In this way, your capital is preserved and you have time to learn without ever wiping out your trading account.
6. Choose a Reputable Broker: Trust Is Key
Your forex broker is your gateway to the market, so it is wise to pick wisely. Look for a broker regulated by a body such as the Financial Conduct Authority in the UK or the National Futures Association in the US.
With a good broker such as Finbok, you can be sure of multiple and reliable trading platforms, efficient customer service, and secure transactions. Read about forex reviews so that you are confident about your broker providing you the right tools and education for trading.
7. Understand Leverage: High Reward, High Risk
Leverage is a ratio that describes how much of a position in the market you can control with a small amount of capital. For example, if your broker offers 100:1 leverage, you are able to control $10 000 in the market with a $100 trade.
While leverage increases your potential trade, it also magnifies your losses.
The first thing to realise if you’re a beginner is that you should be trading only small amounts, just to get a feel for the market and how leverage works; you can increase your risk later, but popular mistakes, over-using leverage, is often one of the quickest ways to lose money in forex trading.
8. Practice Patience: Forex Is a Marathon, Not a Sprint
While new traders are keen to make money, forex trading requires patience. The market can be extremely slow-moving at times, and trading on impulse will often end in disaster.
A common fault of new traders is their unrealistic expectations for quick trades.
You need to be in it for the long haul and, while you might see some trades, you won’t see them overnight.
For instance, the recent gyrations in the euro-dollar exchange rate due to Europe’s growing energy crisis remind us that currency markets ultimately respond to long-term economic trends.
In the end, one important lesson to learn is that it’s important to remain calm and not react on impulse to short-term market movements.
9. Diversify Your Portfolio: Don’t Put All Eggs in One Basket
Another key concept to understand is how diversification reduces risk.
It’s all about spreading your treatments across different assets. Forex traders might do this by trading not only one, but multiple currency pairs.
This can help to limit your losses if a trade goes awry. Give other products – commodities, stocks or indices – a shot if you want to diversify your portfolio and keep it steady when there’s a stock market storm on the horizon.
10. Keep a Trading Journal: Track Your Progress
The best method I know of to improve your forex trading is to keep a journal of every trade, recording entry and exit reasons, your strategy, and the results.
After a while, you can see what you’re doing right and what you’re doing wrong.
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The potential benefits of forex trading are immense, but to gain anything from your experience, you must be able to follow best practices, and you must also be mindful of the inherent risks.
Here’s what you must know:
1. The potential benefits of forex trading are immense
2. People who want to make money from forex trading must be able to follow best practices 3. The best forex trader in the world will still succumb to risk
4. Being able to minimise risk is integral to being a successful trader.
5. Start small: Start in small amounts. Before ramping up your position size and volume, use your strategy and risk management on very small positions until you feel comfortable with them.
6. Apply Risk Management Tools: Always use a stop-loss to limit the maximum loss per trade. Know how many pips you want to risk on each of your trades.
7. News: The forex market is a political animal and reacts to worldwide events. Keep abreast of financial news, especially from the Reuters news service.
However, forex trading is not without risks. The most common risks include:
– Market Risk: The value of currencies can fluctuate rapidly, leading to unpredictable market movements.
– Risk of Leverage: Leverage creates the potential for larger trades, but it also multiplies potential losses, something that many new traders are shocked to discover when leveraged trades go awry.
– Interest Rate Risk: Changes in interest rates set by central banks can give rise to volatility in currency values.
Why trade with Finbok? Finbok by delivering an innovative platform, provides itself as one of the easiest trading platforms in the market. Besides, you can acquire much more through educational resources, demo accounts, and customer service, 24/7! The introduction of Finbok and its advantages is covered.
For starters, Finbok boasts an easily usable platform that is accompanied by educational materials, demo accounts, and quick customer service.
So, if you embark on forex trading, you should do it carefully, patiently, and with as much discipline and humility as possible.
Discovering your own style will require dedication, but the tips outlined here should help you get past the initial stumbling blocks as you make your way.
Forex trading will take time if you want to do it well and not lose all your money. Study, stay up to date, and be ready to change your purposes as the market itself changes. Above all, only take what you are ready to lose.
