Forex is one of the most talked-about financial trading options out there, and for very good reasons. If you’ve looked into forex trading and figured it would be a good way to increase your capital, you’re not wrong at all. However, growing your wealth with forex trading does not come without a hassle, so if you’re thinking about being a forex trader, there are a few things you should learn first.
If you want to be successful with forex, you need to learn quite a bit about the largest financial market in the world. Getting familiar with the market, reading as much as you can to understand the notions, keeping yourself informed on what’s changing inside the market, and understanding how to find a strategy that suits your trading style is just a small part of the homework you will need to complete.
Need help with getting into the basics of forex? You have come to the right place. We did our research, talked with a bunch of experienced traders, and found out what they wish they knew before getting into forex trading. We gathered all this information and put it together in this short guide that will help you learn from the best, so keep reading to find out more.
The Forex market is very different from other financial markets
By now, you probably know the forex market is not the only financial market out there. Traders can experience currencies, but they can also try their luck with stocks, bonds, futures, and more.
The forex market is quite different from the rest of the financial markets out there for a variety of reasons. For starters, the forex market is not regulated the same way other financial markets are. There is no omnipotent regulatory body that dictates how the market moves, simply because that would be impossible.
Because it is the largest financial market in the world, the forex market can’t be regulated by a single governmental body. Instead, there are multiple regulatory bodies that supervise specific jurisdictions. This allows the market to be open 24 hours a day, 5 days a week. What’s more, the market is also very complex and provides lots of opportunities for players to take advantage of due to its size and liquidity.
Get familiar with currencies and currency pairs first
To put it simply, trading forex means trading currency pairs. In a currency pair, you need to look at how one currency moves against the other, but keep in mind that not all currency pairs will act the same. This is why it can be very complicated to master multiple currency pairs at once, so if you want to get into forex trading, it is advised you choose one or two currency pairs to start with and only move to a different one once you have mastered them. This will help you learn how to anticipate the market and plan your moves right, which is basically what trading means.
One of the biggest mistakes inexperienced traders make is trying to trade as many currencies as possible, but this can be a costly approach. While experimenting is good, you may not want to put all your money at risk from the very beginning. Choose a currency pair and give yourself the time to master it. Learn how currencies move one against the other, determine what causes them to go up or down, and only move to other pairs when you are confident in your skills.
Getting proper forex education is a must
The forex market is very complex and involves multiple types of trading. This is why you need to learn as much as you can about it before starting to experiment with currencies. By doing so, you will learn what to expect and, more importantly, what all those letters, numbers, graphics, and abbreviations mean.
Start by getting familiar with the basic forex terminology. You will encounter terms such as pip, spread, leverage, margin, volatility, and you need to know what they mean if you want to understand how they affect your trades.
Next, start learning more about the various trading methods and strategies. While many beginner traders choose to start with day trading, this is not the only choice you have. For example, many beginners find binary trading much easier, as it basically involves choosing between two outcomes, mainly a yes or a no.
Let’s take, for example, the EUR-USD pair and pretend the current rate is EUR 1 – USD 1.3445. For a weekly option that expires, say, Friday at 5 PM, you may be asked to decide if the EUR will decline or not by the set time. If you choose yes and the EUR does decline, you win. If your choice is wrong, you lose. This is just a basic example, but you get the idea. If you find this type of trading interesting, all you need to do is find a reliable binary options broker, open an account, and start exploring.
Finding a trading strategy that suits your goals is paramount
If you are considering forex trading, you probably have a set goal in mind. You may want to grow your wealth, raise money to buy a new house or car, or set something aside for when you retire – all of these are valid financial goals, but each may require a specific trading style in order to accomplish it.
Besides your financial goals, your personality and risk aversion will also contribute to finding a trading strategy that works for you. There are plenty of options to choose from, each suited for specific time periods or goals, including:
- Scalper trading – holding positions for short periods of time, usually no more than a few minutes; suited for small but constant gains.
- Day trading – positions are held for no more than a day; also suited for fast-paced trading.
- Swing trading – positions are held for one or two weeks.
- Position trading – positions are held for weeks, or even several months, as traders focus on long-term price changes.
This content is brought to you by Shahbaz Ahmed.