It is very easy for a newbie forex trader to get overwhelmed and confused. There is a lot of information that the trader has to take in to start forex trading and continue with it as a successful profession. However, this is best done when taken in a slow manner.
Forex is a lucrative investment career — that’s if you know what you are doing. For newcomers, it can feel like information overload. You may be wondering if you’re making a sound financial decision.
Don’t go in blind. Below are five tips to make your break into Forex trading much smoother.
#1 Know Yourself and Your Assets
It is easy to get swept up in the glamor of Forex trading. Success stories you’ve read up on, perhaps a good friend is thriving in the Forex market, or maybe you’re just a dreamer.
But not everyone is cut out for a career in risky investments. While it would be nice to make a few extra dollars trading Forex, know your risk tolerance. Do you want to embark on investments that do not guarantee rewards?
Investing is exciting until you wind up with less money than you had when you began. Suddenly, you start to lose some of that vigor.
Decide if you want to play Forex trading as safely as possible, or are you willing to risk more to make more?
Answering the last two questions informs how you should structure your Forex trading strategy.
#2 Get a Mentor
While you can certainly learn to be a masterful Forex trader on your own, you can accelerate the educational process by connecting with a skilled Forex trader.
If you have a friend or family member who is well-versed in Forex, or trading in general, take them out for a cup of coffee and pick their brain a bit.
The Forex website has several helpful tutorials for beginners, as well as more advanced information for veteran traders. It is an excellent resource and covers each key aspect of Forex trading in-depth.
#3 Seek Out a Quality Broker
Most beginners jump on with the first broker they see in their zeal to begin Forex trading. While such enthusiasm is understandable, picking a broker could make or break someone’s Forex trading career.
Don’t treat this as a throwaway step.
Unreliable brokers undermine your financial gains as well as waste your time. If your trading goal does not match the expertise and other details of a broker, you are depleting energy with a broker who cannot give you the specialized help you need to succeed.
Do your homework, read reviews, and be exhaustive before you settle.
#4 Treat Forex Trading Like a Business
Once you have the proper tools in your toolbelt — a good strategy, mentor, and broker — you need to dedicate serious time investments to ensure your Forex goes somewhere. It is easy to dabble in Forex for a few weeks before ultimately giving up or losing interest.
Would-be entrepreneurs exhibit similar behaviors, but a dedicated few actually reap the fruit of their labor. Expand your Forex trading strategy to include the tools and people you want in your Forex trading endeavor and the time you will set aside specifically for Forex trading.
#5 Set Aside Small Funds for Initial Trading
Start with smaller investments, and scale upwards to a degree you’re comfortable with to minimize risk and more carefully plan out how you’ll diversify your assets.
Set aside a small fund to use when you begin trading and only grow that fund with the organic profits you make from trading within the Forex market. You not only save your income for another purpose rather than spending it on Forex, but the limitation motivates you to grow the capital you will use for later Forex through Forex trading.
Below are 10 tips that a beginner forex trader can keep in mind that will help to set up a successful career and also help to save money in the early stages.
#6 Learn the Basics Thoroughly
As a starter in the forex trading market, it is important to learn the basics thoroughly. Firstly, the trader should make it a point to learn the jargon that is commonly used during trading and their meanings. It is important to get a grip of technical and fundamental analysis for a beginner in forex trading and thereafter go about to put in place a winning forex trading strategy. This would help them to save a lot of money and trouble later on.
#7 Manage Your Money Properly
The beginner forex trader first has to survive in the market and then stay on to succeed. It is common for novice traders to have more losing trades than winning trades. However, if the trader goes broke during this time, it is very difficult to come back. For this the trader should have a good trading strategy in place and more importantly, good money management.
#8 Set a Stop Loss for Every Trade
Presetting a stop loss for every trade is important as it helps to predetermine the trader’s loss in case the market moves in a direction that is unfavorable. It is also important to remember that it is not wise to move the stop loss further away once the trade has been opened.
#9 Be Realistic
It is vital for the new trader to be realistic. Understand that only hard work in the beginning stages will pave a way for success. If someone tells you that forex trading is easy and you can make a lot of money without much exertion, they are perhaps lying. It is not easy: physically or mentally. Mental traps are common along the way: the trader is likely to be emotionally overwhelmed, sometimes get greedy and depressed at other times. It is important to be grounded and realistic.
#10 Do Not Trade Too Much
In the beginning stages, it is important to trade with a not-so-high frequency. If you trade a lot, then the chances of becoming emotional about the trades and their outcomes is possible. This can, in turn, affect the outcome of the subsequent trades. Trading discipline is therefore very relevant in a beginner traders’ professional life.
#11 Do Not Change the Trading Strategy
It is not recommended that beginners in forex trading change their strategy too often. Whatever, be the strategy, it is important to learn it well and then stick to it. Jumping from one strategy to another only gives the trader false hope and the trader does not ever learn one strategy completely to master it. Beginner traders tend to switch to other methods when they have a few losing trades when using one strategy. It should be understood that this is normal in forex trading whatever be the strategy. Only sheer hard work and discipline can help the trader to master the strategy.
#12 Do Not Place the Stop Losses Too Close
It is important not to place the stop loss at too close a price to the entry price. This would wipe out the trader’s chance to make a winning trade in case market decided to move in a favorable direction. Though the idea is not wrong, beginner traders should overcome the drive to place the stop loss too close in a bid to save them from any loss at all.
#13 Do Not Start Without Any Education
It is most important that a forex trader gets trained and educated before trying out moves in the currency market. If the trainer is not educated, it is easy to lose money in forex trading. Some forex brokers offer demo accounts that the beginner trader can practice on before attempting to trade in the real currency markets. Some money has to set apart by the newbie trader for education. It is important to learn from the experts. It is easier to duplicate their strategies in case of favorable/unfavorable markets.
#14 Do Not Get Negative When Trades Are Unfavorable
It is normal for the market to turn unfavorable and result in losing trades for the newbie forex trader. In such a case, it is important to allow the trades to take their own course and not close them too early. The stop loss should be put in a position where it is OK for the trader to let go of the trade. It is not a good idea to micro-manage the trade.
#15 Interact With Other Traders
In addition to reading books on forex trading, it is important for beginner traders to use other traders’ experience as a learning source. Fellow traders would be able to provide valuable advice about how good the trading strategy is on the basis of their practical experiences. Becoming a member of online forex trading forums is a good idea. The beginner trader can clarify all doubts with smarter traders and sometimes even experts in the field.
#16 Understand Key Terms
First, let’s start with some basic terminology you’ll need to know. If these are foreign concepts to you, that’s okay. Everyone needs to start somewhere.
- Pip: One pip is the smallest unit in a currency pair. A pip equals 0.0001 the currency pair’s price, so if the USD/CAD pair rises from 1.31111 to 1.31112, the price rose by one pip.
- Spread: This is the discrepancy between the bid and ask price of a currency pair. Most widely-used currency pairs have a low spread — less than a pip in most cases. Pairs that aren’t traded as frequently tend to have higher spreads. Valuable Forex trades comes from finding the highest spread possible.
- Margin: A margin is how much money you have in your account as a trader. Since you most likely lack a high enough margin to make a good profit, many Forex brokers provide leverage for their clients.
- Leverage: The money Forex brokers give their clients to boost their client’s trading volume. A 1:5 leverage rate on your $1,000 trading account allows you to trade $5,000 worth of a currency pair. Through this leverage, your profits are maximized by a factor of 5. Just know that while your wins are maximized as such a way, so are your losses. Most brokers protect your balance, so it does not fall below $0, but losses are still disheartening.
- Don’t approach brokers as if they’re a dime a dozen. Spend the necessary time to gather as much information as possible.
Come up with a list of several options, and before you begin to contact them, create a list that outlines all of your investing goals so that you can provide a clear and concise mission statement when you meet. This will help you determine whether or not a broker is a good fit for you.
#17 Use a Regulated Broker
The Forex market lacks a central regulator, but Forex brokers can be financially regulated in your area.
Regulated brokers may require you follow more strict guidelines than unregulated brokers, but the extra rules are worth it. Choosing a regulated broker protects you as a trader.
Depending on the regulation agency, brokers may not provide unlimited leverage, volatile trade techniques, or negative account balances (where you would owe the broker if you incur a major loss).
Having the self-control to follow a regulated market ensures better financial protection in the long run.
#18 Consider the Broker’s Key Aspects
While many factors should go into deciding which broker is right for you, you should think about the following areas:
- The size of the broker’s spreads: As mentioned previously, any currency pair needs to have a spread before the trade is profitable. Find brokers that offer low spreads at first, as this will help you get accustomed to Forex trading without threatening your initial investments.
- No commission: While you might be hard-pressed to find such a broker, you may be lucky enough to find a broker who doesn’t charge commission. Commissions would decrease your overall potential profits – but don’t pass on a great broker over a fee.
- Low minimum deposits: Most Forex traders will require a minimum deposit upon opening a live trade account. It is best to find a broker with a low deposit requirement so you can keep more money for trading.
For beginner traders, it is important that they get a good idea about the returns that they need from the forex trading system to set up a good trading strategy and follow it up with hard work and discipline. This will help them to save a lot of money rather than follow seemingly easy methods and lose money as soon as they begin their forex trading career.