The phenomenon of digitalization and the technological advances that we’ve experienced over the course of years have made it easier than ever for people to partake in trading activities in order to increase their wealth. We now have access to a wide variety of financial tools and instruments that have made trading an appealing activity for everyone, even for those who have very limited knowledge in the investments field. And out of all the trading options available at the moment, foreign exchange has to be the most popular one.
Foreign exchange, also known as forex or FX trading, refers to the trading of one currency for another with the purpose of making a profit. These trades take place on the foreign exchange market, which is the largest, most liquid financial market in the world, with a volume of trillions of dollars being exchanged every day.
The size of the forex market, its accessibility, the low transaction costs, its decentralized nature, and high liquidity make it a great option for trading beginners. Therefore, it’s not really a surprise that everyone wants a piece of the pie. However, before you take the leap and jump into forex trading, you have to make sure you know exactly what you’re getting into, so you don’t end up regretting your decision.
As a beginner, proper preparation is key for ensuring success as a forex trader. So here are some simple, yet very effective tips to set you on the right path.
When you start a new activity, especially one that involves investing money and comes with a certain degree of risk, it makes sense to learn as much as you can about it. You need to have a solid understanding of the market and the trading strategies you can employ before you start making transactions. Your trading success depends largely on your level of forex education.
The more you know, the better equipped you’ll be to make wise trading decisions and minimize risks. This means you have to go beyond the basics and gain in-depth knowledge of forex trading. The good news is you have all the information you need at your fingertips, from guides and tutorials to forex courses teaching you how to get started in forex from scratch.
Define your goals
Gaining theoretical knowledge on forex is not enough to get you ready for your trading journey. You must also know what you want to achieve through forex trading, and for that, you have to define your objectives. Increasing your wealth or making a profit are a bit too broad to set you on a clear path, since everyone is after that, so you have to narrow them down to something more specific.
Maybe you want to get into forex trading to create an extra stream of income, or you’re looking to make a career out of it. Regardless of the reason, you have to know exactly what brings you to the forex market in the first place so you can figure out which steps you have to follow to get there.
Decide on a trading style
This brings us to our next point on the list – deciding on a trading style. Now that you know what you want to achieve as a forex trader, you can determine the trading style that better serves your purpose.
As you deepen your knowledge in the field, you’ll find out there are different trading styles you can adopt, such as day trading, swing trading, position trading, or scalping and each of them has a different risk profile. There’s no way to avoid risk altogether when trading forex since it comes with the job. But what you can do is choose a trading style that matches your goals and specific requirements, and get familiarized with the risks it involves.
Choose the right broker
The next thing you should ask yourself is how you’re going to trade. While there are plenty of forex brokers and trading platforms that can help you out, you have to be aware that not all of them are created equal. It’s therefore extremely important to do in-depth research and compare your options when choosing a broker.
As a trading beginner, you might want to open an account with a low spread Forex broker, since lower spreads translate into lower costs for traders, and they also tend to have low volatility and high liquidity. Make sure you also check the legitimacy, safety, and reputation of the platforms before you make a final decision.
Considering you’re not a versed forex trader with years of experience under your belt, it would be wise to start with smaller trades, until you get the hang of it. Fortunately, one of the biggest advantages of forex trading is that it allows you to start slow, with a relatively small capital, and grow over time.
If you want to be extra safe, you can practice your trading skills and test different strategies by opening a demo account. These accounts allow you to trade using virtual money, so there’s zero risk involved. As you grow more confident in your trading capabilities, you can switch to a live trading account and start testing the waters in the forex environment.
Analyze your performance
If you want to improve your trading skills and evolve as a forex trader, you have to look back at your trading journey and analyze your past performance. This will help you identify your strengths and weaknesses, and identify the areas that require improvement.
You have plenty of time to evaluate your actions or catch up on the latest events and trends in the field during the weekend when the markets are closed.
It will give you the opportunity to brush up on your trading skills and rethink or adapt your trading strategies to ensure better outcomes in the future.