trading forex

How To Trade Forex – What You Should Know to Get Started

Forex is considered to be the largest financial market in the world. However, until recently it was unfamiliar to retailer traders. Before having an internet connection became commonplace, the only people who traded FX were large financial organizations, hedge funds and corporations.

Why is Forex Different From Other Markets?

Unlike other trading options, Forex does not have a central governing body. Members trade with one another based on credit agreements. When push comes to shove, the most liquid market in the globe relies on not much more than a metaphorical handshake. Listed below are a few other ways in which Forex trading is different from stocks, futures and options.

  • There is no uptick rule.
  • There are no limits on the size of the trader’s position.
  • Insider trading does not exist in the Forex market.

Understanding Common Forex Ideas

The following is a list of forex ideas that new traders must become familiar with:

  1. FX firms are called “dealers” not “brokers”. Unlike a broker, a dealer assumes market risk by being a counterparty to a trade.
  2. FX does not have commission. Instead, dealers make their money through bid-ask spreads.
  3. In the FX market, currencies always trade in pairs. The terms “short” and “long” are commonly used in this scenario.

How to Trade Forex

Trading Forex is a lot more difficult than it may seem. Beginner traders lose thousands of dollars because they are unaccustomed to the trading process. For this reason, newbie traders should learn all that they can about the FX market.

The simplest way to do this is to sign up for a Forex trading platform and read the manual guide. Most FX websites call themselves “brokers”.

These sites have software that traders can use to practice trading. This software emulates the FX market in real-time. In short, users can hone their skills on a fake (albeit realistic) marketplace with “paper money”.

Most newbie traders use this software for at least 6 months before they start trading real cash. For many people, this will sound like an excessively long time to go without making any real trades.

Unfortunately, people tend to lose money when they do not know the FX market inside and out. Investors can save themselves a lot of trouble by spending time on practice software. Doing this will lessen the odds of making mistakes simply because the investor did not know how to place good trades.

The FX market is a great investment. Many people around the world have made their fortune on Forex. That being said, FX is not for everybody. High returns means high risks. People who are not prepared to lose their investment may be better off with low risk investment options such as bonds, savings accounts and retirement plans.

fx market

Is Trading Forex For You? A Look Into The Different Types Of Investor Personalities

Trading in the forex market can be profitable but not without its risk, and like anything else, although the market welcomes everyone, it’s definitely NOT for everyone.

What we mean is that forex trading has inherent risks that might be exciting for some but unbearable for other people. So, is forex trading for you? Well, that really depends on your investor personality. There are actually three investor archetypes. Understanding each personality can give you insights on whether or not forex trading is right for you.

The first type of investor personality is the analyst:

The analyst is the type of investor who will analyse all the implications of his decisions before investing a single cent. The best example of this type of investor is Warren Buffet.

The second type of investor is the trader:

Having a trader-type investor personality means you are decisive but don’t necessarily rely on complete information to make a decision. This type of investor relies more on his gut feelings. George Soros comes to mind when it comes to this personality.

The third type of investor personality is the actuary personality:

Like an actuary in an insurance company, this type of investor is focused on an outcome and not concerned with one single event. Think Benjamin Graham.

If you ask us, we think that the best type of personality for forex trading is a combination of the analyst and trader personality.

Although it’s been compared to gambling, you can actually lessen your risk of losing a lot of money in forex trading by analysing how certain factors, like a change in national policy, affect the movement of a currency, whether it’s for better or for worse. On the other hand, you can’t always predict how the market is going react to certain events. Sometimes you will need to rely on your gut instinct to predict the markets.

If you’re interested in trading in the forex markets, you can and you should, however, you should only do it with money you can afford to lose. Unlike the stock markets, forex trading has a low entry point. You will only need $200 to get started. If you ask us, however, we think you should try the demo accounts first before trading with real money. That way, you will only learn more about how the market works without actually trading real money.

There are many ways to earn money from forex trading. You can buy a currency pair right now, when the base currency is low, and hold it for the long term and only sell it when base currency rises in price. You could also hold your currency pair for a short time, i.e., a few hours, and sell just at the right time. Whatever strategy you take, however, there’s no escaping the need to make an educated guess.

A lot of traders many years before they master forex. So don’t it to be a walk in the park. Safe trading and trade well!

forex money

6 Top Reasons Why Forex Traders Fail

Apparently, the forex market is the biggest and most accessible financial market in the world. There are quite a number of forex traders, but only a few are truly successful. Traders, like in other asset classes, fail for many obvious reasons. In addition, trading forex usually requires high leverage – usually to increase the potential return on investments, makes it a high risk investment.

Other factors specific to the trading currencies may also result to higher expectations for returns than the market can actually offer. At times, even, traders may be prompted to take more risks that they would not take when undertaking other investments. That said here are some of the top reasons why forex traders fail.

1. Lack of trading discipline

The biggest mistake a forex trader can make is to let his/her emotions get in their way. In this trade being successful means achieving some few big wins while still suffering many smaller losses. When experiencing consecutive losses, it`s important to keep your cool, trying to beat the market only leads to more losses which eventually drain you out.

2. Failure to plan

Planning is important in order to achieve success not only in forex trading but also in every other trade. That is why unsuccessful forex investor are oftenly those who fail to work within a documented plan. The plan should above all include some risk management guidelines as well as the specific return on investment expected. Failing to stick to the laid out plan leads to massive continuous losses.

3. Greed

Yes, I said it. Some investors feel that they have to squeeze every last pip out of a move. There are huge chucks of money in the forex markets every day. And trying to clutch every last pip before a currency pair turns usually sets many traders to lose the profitable trade that they are sitting on.

4. Failure to adapt to the market

Again this trickles down to planning. Creating a plan for every trade like carrying out scenario analysis or planning your moves and counter moves for all potential market situations is important. It is the only sure way to reduce the risks of large and unexpected losses. Knowing the market well also helps a trader to be in a better position to modify their strategies with market changes. It also helps to be more flexible in establishing new and creative ways to profit from the evolving market.

5. Having unrealistic expectations

Many people enter into forex trading thinking that it is a get-rich-quickly scheme. Quite far from the truth, accumulating profit comes not as a sprint but a marathon. A lot of effort and mastery of a number of strategies is required. Most of the traders who have failed are unable to manage their capital. Risking more than it is warranted and fore going trade discipline for gambling only leads to much more losses.

6. Not learning from past experiences

Unsuccessful traders almost all the time ignore the important cues presented by the market. Failure to learn from own past success and failures as well as those of other successful traders has put many of investments on the line.

Remember, there is no such thing as free lunch in the forex market. So work your way up slowly but sure of you steps. Build your own capacity to make more informed decisions and more importantly, work diligently to learn with every trade.