The Forex market is a global foreign currency and exchange market. Forex (FX) is a combination of matching foreign currencies. It involves pairing a currency against another or changing a currency against another currency. This can be due to reasons such as Trading, commerce, or even tourism. In this article, I will be explaining what the Forex market is and six tips on how to trade forex.
As of 2019, the daily traded volume for forex hit a little above $6.6 trillion. The Forex market is the global marketplace where investors exchange national currencies. Every country also trades forex in the FX market. These currencies traded are matched with other foreign currencies and traded in the FX market. An example of forex currency pair is GBP/USD used in trading the pounds sterling currency against the U.S dollars.
Because of the complexity of trading forex, some newbies turn to forex brokers for help. While this is very important and helpful, it is also advised for individuals new to the forex world to do due diligence and research before investing their capital. Experience has shown that retail investors who rushed into trading stand a big chance of losing a whole lot of money because they didn’t carry out research on the market they want to invest in.
How FX Market Works
The uniqueness of this international marketplace is that it is decentralized. This means that no individual has the ability to control the price or the market. Instead, currency trading is carried out through a method called the OTC (Over-the-counter) method. This means that every transaction is carried out through computer networks around the world.
To avoid serious mistakes and loss of capital, due diligence and research must be done before venturing into trading.
When trading forex, the following Six tips must be followed. They include;
- Knowing the Markets: Knowing the market is a very important aspect if you want to be successful in forex trading. You must take your time to study the currency pair including the history of that pair before investing. Each currency pair have its uniqueness and effects so having this knowledge would be beneficial for you in the long run. This time investment can prove very valuable over the long run as it will help you save a good amount of money and avoid unnecessary mistakes that can blow off your capital.
- Develop an Action Plan and Stick to it closely: Developing a trading plan is a little secret to having a successful trade. This plan should include your profit goal, your trading methodology, and approach to market movement, as well as your risk tolerance/ risk management. Avoid being tempted to move outside your trading plan as this can be very dangerous.
While trading or after placing a trade, remember that there are possibilities of being irrational especially when the market is going against you. Be focused and rational while maintaining disciple and sticking to your plan.
- Continuous Practice: As they say, practice makes one perfect. For you to succeed in the forex market, continuous practice is very important. Using a demo account to practice can help you master how to trade. A demo account is a demonstration account that looks like a real account. It is used to help an individual who wishes to trade feel what the market looks like.
Practicing with a demo account can help you see how forex trading is done and it also offers you an opportunity to test your action plan and perfect it before investing your own capital.
- Avoid Trading with Emotions: Never trade with emotions as this can be very disastrous. Falling in love with a particular trade because of its past success in the market can be a mirage and can set you up for a big disaster.
Sometimes, the position you opened in the market might be going against you. This can make you be tempted to open more positions so as to help you recover from the previous loss. Avoid this urge as it might not go well finally. Never make moves that go against your trading plan. Never engage in “Revenge trading”. It is unrealistic and may end up badly sometimes. Always stick to your Trading plan.
- Know your Limits and stay within them: Knowing when to take profit and when to close a trade can be very vital in your journey to forex trading. For example, you might open a position in the trading app and observe as the market moves in your direction. Greed can set in and make you want to continue trading and forget about taking a profit.
Because of the volatility of the market, the movement can crash down to negative and you lose everything. So set your stop loss/ your leverage ratio in accordance with your needs. Always stake the amount you can sacrifice to lose. Always stay within your set limit.
- Be Consistent: A key to successful trading is consistency. Experienced and successful traders have lost a lot of money at one point in their trading careers. But what differentiates them from others is the amount of effort and consistency they put in. they never quit. Maintaining a positive view of the market will help you stand a better chance of being successful. Always be slow and steady while sticking to your plan. Consistency through discipline and patience will eventually pay off.
These six tips are basic when you want to trade forex. Forecasting the “weather condition” of the market will help you in your trading journey. No matter which style you want to use when trading, using the right tool to find potential trading opportunities will help you develop into a skillful trader.
Using the right broker who is experienced can be of immersed help. You will need all the guidance and direction for you to be able to navigate the vast ocean of the forex market. Applying these tips will make you enjoy your trading and you will get the profits you seek in forex trading.