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.
Forex which stands for Foreign Exchange is the global, over-the-counter or OTC market for traders, investors, banks and institutions where they can exchange, buy and sell world currencies. An online channel called the Interbank Market is where trading is done 24 hours a day, five days a week. With an estimated $5 trillion US currency, forex is one of the largest trading markets.
With the emergence of the internet, even average investors are able to buy and sell currencies with ease just by the click of a button. They set up their own accounts which allow them to trade in various online brokerages. Daily currency fluctuations are usually very small in the forex market with most currency pairs moving less than one cent per day. That’s why those who speculate on currencies depend on the accessibility of very large leverage so they may increase the value of likely movements.
In the forex market, you can choose to open and close your position within minutes. You may also keep it open for months. Manipulating the forex market is almost impossible due to its reliance on impartial applications of supply and demand. Investors have many chances after they enter the forex markets. But it’s important to remember that in order to be successful in the field; you have to get familiar with the fundamentals behind currency movements.
How to Trade on the Forex Market
Now that you have an idea of what forex is, let’s look at how to use it.
In our everyday transactions, we see forex trading. If you are considering purchasing a product from a foreign country, you would pay with the local currency. The business where you are purchasing the product from imported it from that country. The local currency you used to purchase the product would be exchanged to the equal value of the foreign country’s local currency.
All forex transactions and conducted electronically over-the-counter or OTC. Traders from all over the world are connected through computer networks. This means the market is open 24 hours a day. You can conduct trading almost any time of the day in any time zone.
Styles and Strategies of Forex
Research is essential when trying to determine which style and strategy you want to use for your forex trading. Some are more effective than others. Below are a few examples.
Day Trading Strategy: If you will be using this strategy, your trades will more than likely be exited prior to the end of the day. This ensures that you will be protected from any negative occurrences that could possibly happen overnight.
Swing Trading Strategy: This strategy is generally used for your trades that extend through the period of one day to one week.
Trend Trading Strategy: As the name implies, you are bound to follow the trend to make a determination as to what direction the prices have been taking.
If you will be using trading styles which depend on time frame and holding periods for every trade, you may want to consider using intraday trading, position trading, fundamental trading, or technical trading.
A currency pair refers to the purchase of one currency and the sale of another on the forex market. One of the most widely traded currency pairs is the euro against the US dollar. On the forex market, it is shown as ERU/USD. The USD is referred to as the base currency and the EUR is the quote currency.
Once you decide to purchase a currency pair, you will be purchasing the base currency and selling the quoted currency. When you want to sell the currency pair, you will be selling the base currency and receiving the quote currency. Buying is referred to as the bid price. This tells you the amount of quote currency you will need to purchase the base currency. The sell price is called ask which refers to the amount of quote currency you will receive when you sell the base currency.
The three types of currency pairs are major, minor and exotic. They are available worldwide.
Major Currency Pairs: The US dollar is contained in all of these currency pairs either as the base or the quote currency. Known to be the most liquid, they also offer the lowest spread.
Minor Currency Pairs: Often referred to as cross-currency pairs or simply crosses, they do not contain the US dollar. They have a little wider spread and are not as liquid as major currency pairs.
Exotic Currency Pairs: They are usually made up of one from the major currency category and one from an emerging economy such as Mexico or Hong Kong. Exotic currency pairs also have a widespread.
Helpful Beginner Tips
Now that you understand what trading on the forex market is all about, here are some helpful tips to hopefully help you be successful.
Make sure you have the finances to invest in forex trading and that you have a tolerance for risk-taking. Start with small investments. There are no guarantees in investing in the market.
If you know someone who is an experienced forex trader, get them to give you some educational tips on trading. If not, find and study some online tutorials on forex trading.
Do extensive research in finding a broker. It’s important to have someone who understands that you are a beginner and are going to work earnestly and honestly in your behalf.
Just like you do research on finding a broker, do the same thing in finding good forex trades. Even though there are no guarantees, you still want to have as much information as possible before investing your money.
Join one or more online forex forums so you can interact with other traders. This is another way to get useful tips as well as learning from other traders’ experiences.
There are more tips for beginners on forex trading. It is very important to be well prepared before investing your money. If you want to be successful at trading, you need to have self-discipline. Forex trading should never be considered a get-rich-quick plan. Forex trading should be viewed as a source of ongoing work with the potential of making money.
Forex trading is ideal for stay-at-home moms and dads, college students, and minimum wage employees. This is because forex trading requires very little startup capital. You will also need a computer and an internet connection. If you plan on using forex trading as a second income, you should make sure you have a well-practiced plan before investing your money. The library is also a great source for getting information on forex trading.
You may want to do your initial trading on paper before investing for real in the forex market. This way, you can work all the kinks out of your system before investing real money.
Here is a list of some tips for using Forex trading as a second income.
Learn as much as you can with the goal of becoming an expert. In doing so, you will find money making possibilities are unlimited.
Set up a demo account so you can practice forex trading. You will be gaining knowledge without losing any money. However, if you want to speed up the learning process, invest a small amount of your own money.
Trend can be defined as a tendency for prices to move in a particular direction over a period. They can be long term or short term. Trends can move upward, downward and even sideways. In relation to the forex market, success is tied to the investor’s talent to pinpoint trends and place themselves for profitable entry and exit points.
Trends are easier to spot when you are equipped with the right tools. That is why you need the Forex Trend Rider. This is an automated system as a trend analyzer; it enables the trader to see the right formations. This definitely makes a positive difference helping you see the right formations which leads to building your wealth.
Trend Rider is an automated system that was created to help you be a successful investor. It does this by identifying where the markets are going or changing thus finding the right trends for you. Trend Rider also tells you where to enter and exit as the market changes by using technical analysis. This method consists of the core data used by investors to take directly from price charts.
The following key points will help you have a better understanding of Forex Trend Rider so you can maximize your trading experience.
Learning how to invest in a rapid market: Education is a major factor for success. Working with Trend Finder gets you into the routine of responding when the market is perfectly situated.
Activating Entries at Lightning Speeds: When your money is on the line, time cannot be wasted. The sooner you get into a moving trend, the more you will be able to get as price extends up or down.
Organizing with the Economic Calendar: It is always a good idea to check the economic calendar before trading. Trend Rider will line up your price moves with specific times on the calendar for you. You will always be informed of the current bank meetings and when they are ready to release new interest or bond rates. You will have no more surprise experiences.
Figuring Additional Data: Your most valuable tools you will get from your technical analysis are pivot points and trend signals. It’s easy to be fooled regarding price moves that don’t actually work out. This is the benefit of pivot signals. Identifying a trend under the right conditions is important. Trend signals provide and easy-to-read format pinpointing when trends change, form or will keep going with their trajectory.
Measuring Market Retracements: Retracements will almost always occur no matter how high or low prices go. If you can’t identify retraced patterns, you will miss out on profitable trends. Forex Trend Rider will mark out likely retracing points enabling you to hold your ground when needed. False price moves will be more easily detected.
Following Your Stops for Increased Profits: The final step is to protect the profits you’ve gained by locking them in. By using Forex Trend Rider, you can relax and watch prices go up without worrying about losing what you earned in the market. This software will automatically adjust your stop loss to secure a particular distance from the current price.
The Bull and Bear Markets
The bull market is when the prices are going up and the bear market is when prices are heading down. Let’s look at each one.
The bull market gives people the confidence to invest their money without being concerned with the risk factor. In the forex market, this leads to a rise in various currencies such as the Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD), and other emerging market currencies. But bull markets lead to a decline in currencies such as the Japanese yen (JPY), the Swiss franc (CHF) and sometimes even the US dollar (USD).
Because forex trading is always done in pairs, traders are offered both bull and bear markets. This is a key benefit. As an investor, you can take advantage of rising and falling markets because when one currency is weakening, the other is gaining strength. Bull and bear markets can determine currency market trends. It is important to pay attention to market trends so you can make the best decisions on how to manage risks and determine when it is best to enter and exit your trades.
In the bear market, investors sell riskier assets like their stocks and less-liquid currencies such as those from emerging markets. Because the US dollar and the Japanese yen are considered safe-haven currencies in forex trading, they tend to get stronger in a bear market because they are more in demand.
Traders in the bear market are looking to enter when prices are falling so they can purchase once they think the market has reached its peak.
Listed below are some the key forex terms used.
Pip: A pip is the base unit in the price of currency pairs or 0.0001 of the quoted price. So when the bid price for the EUR/USD pair goes from 1.16667 to 1.16677 that represents a pip change of one.
Spread: The spread is the difference between a currency pair’s bid and the ask price. Currency pairs that are considered most popular have a spread that is often low. In some cases, the spread will be less than a pip. Pairs that are not traded as often, tend to have a spread that is much higher.
Margin: Margin is the money in a trader’s account. The average retail forex trader does not possess the margin needed to trade a high enough volume to make a good profit. Therefore, many forex brokers offer their clients access to leverage.
Leverage: Leverage is capital provided by a forex broker to strengthen their client’s trading volume. For example, if you use a 1:10 rate of leverage and have $1,000 in your trading account, you can trade $10,000 worth of a currency pair. If the trade is successful, leverage will maximize your profits by a factor of 10. However, using leverage can also increase your losses to the same degree. If your account balance falls below $0, it could ultimately cause the trade to be closed.
Forex investing can be very rewarding and profitable. There are risks that come with the territory. That holds true with all investment markets. However, if you do careful research, plan ahead, and get a good broker, you will certainly minimize your risks. Also, stay current with the forex market by subscribing to online newsletters and joining forex chat rooms. Getting information from other investors ’experiences will be very beneficial to you. Knowing that there are other investors going through what you are going through will give you a lot of encouragement and peace of mind.
Don’t go in blind. Below are the best 18 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.