The beginning of every endeavor can be challenging and discouraging, especially for those who lack the necessary support and mentorship. Taking the pain to read this article shows your commitment to obtaining financial prosperity and freedom through forex trading. And it will pay off sooner than later.
The foreign exchange (forex) market is a marketplace for selling and buying currencies globally. Forex traders aim to profit from the fluctuations in the exchange rates between various currency pairs.
The concept of forex trading is becoming increasingly popular and attractive amongst online traders. Some see it as a lucrative business for making quick money until the reality that forex is not a get-rich-quick endeavor dawns on them through the loss of huge sums of money or the blowing of accounts. Yes, forex trading is a lucrative business that can make one a billionaire within the shortest possible time, but it is not on a silver platter. It demands a lot of hard work and consistent profit-making backed by the right knowledge and psychology.
Beginning a Forex Career
How would a new trader or one considering venturing into this business conduct him or herself? Enumerated below are steps to follow when beginning your forex trading career to ensure consistent profit-making:
- Study and master the science and art of forex trading:
Forex trading is both a science and an art. You therefore need to understand the science and art of forex trading. Some traders having mastered the science are still struggling with the art of forex trading. The information on this subject is vast on the internet via books, videos, articles, etc. Knowledge, they say is power so invest in it. Spend sleepless nights learning about all the ins and outs of this subject. Certain things may not make sense from the beginning but keep learning them. They will be useful later. Endeavor to study the terminologies, currency pairs, market patterns, and factors influencing the various currency pairs.
- Carve Out A Trading Strategy:
There are 1001 trading strategies employed by traders in this market. Spend time learning about as many strategies as you can as a beginner. In particular, you can invest in technical and fundamental analysis strategies. Out of these numerous strategies, choose or carve out a strategy that aligns with your personality – your trading style and risk tolerance. Every strategy works, but none is perfect. Sometimes a combination of strategies can synergize their profitability.
- Plan The Execution of Your Strategy
Planning your forex trading is where the art of trading comes to light. A trading plan should entail your trading goals, risk tolerance, your strategies including risk management and money management strategies as well as the criteria for assessing, entering, and exiting trades. Traders must note that it is one thing to plan and another to stick to and execute the plan. It takes the virtue of discipline and self-control to achieve this. Most traders allow their emotions to rule or dictate their actions against their carved-out plans. Always know that disciplined traders are the successful ones in this market. Identify a successful trader, and you will find out that discipline is the core of his success.
- Find And Open Trading Accounts With A Broker
Brokers are financial companies or agents that execute buy and sell orders on behalf of their clients. They act as ‘middlemen’ between banks bringing sellers and buyers together in a transaction for a fee (commission). To trade in the forex market, you need a broker. It is essential to at least have the requisite knowledge about the various brokers there are and the services they provide. It is a must to select brokers that are regulated to have safer investments. Choose brokers that provide user-friendly trading platforms, have low spreads, and have good customer service.
- Trade with a demo account:
A demo account is an account one creates with brokers that contain virtual funds. It can be used to simulate the market and practice one’s strategies and forex plans before trading with real money. The good thing about demo trading is that it gives traders the platform to make all the mistakes without necessarily losing real money. Beginner traders must ensure they use this period to identify the strengths and weaknesses of their various trading strategies. Whilst most mentors advise using demo accounts to begin trading, a few mentors advise otherwise. They reason that trading with a demo doesn’t afford beginner traders the ability to manage their emotions since they are aware it isn’t real money. However, when a beginner trader begins with a live account while ensuring all the necessary risk management, their trading psychology is developed faster.
- Begin trading with real money.
You can open and deposit in a real account once you feel you have practised enough and understand how your strategy works. The key is to start slowly with smaller lot sizes to manage risks. As traders become better at the game they can consider increasing their lot sizes gradually.
- Remain current and informed
The forex market is regulated and influenced by several factors such as news, economic indicators, and geopolitical events. Since the market is not static, you must be dynamic with your strategies as market conditions change. It is necessary to daily check the events that are likely to affect a particular currency pair before buying or selling them. Many newbies in the forex market have blown their accounts by investing in assets without reading the fundamentals that guide them.
Must know Forex Terminologies
Every discipline or field of study has its language for communication purposes. The advancement in any endeavor demands that you thoroughly understand the language of that discipline. The forex fraternity has its language and every beginner trader must master it. Below are a few of such terminologies as far as forex trading is concerned:
- Base Currency – It is the first currency in a currency pair. Considering GBP/JPY, the GBP (Great Britain Pounds) is the base currency.
- Quote Currency – It is the second currency in a currency pair. Looking at GBPJPY for example, the Japanese Yen is the quote currency
- Bid price – The highest price at which the buyer is willing to buy a currency. It is the first price in the pair. If the GBP/JPY bid is 202.56, that is the highest price someone will buy one Great Britain Pound for.
- Ask price – The lowest price at which a currency is being sold. It is the second price in the pair. If the ask price of GBP/JPY is 202.54, it’s the lowest price at which a seller is willing to sell one Great Britain Pound.
- The Spread – it is the difference between the buying (bid) price and selling (ask) price of a currency pair. If the bid of GBPJPY is 202.56 and the ask price is 202.54, the spread would be 2 pips.
- Contract for Difference (CFD) – A phenomenon that allows traders to speculate and predict price movements on specific currency pairs without owning the currency pair. For example, trading GBP/JPY CFDs means predicting and betting on price changes but not necessarily owning Pounds or Yens.
- Leverage – It is the use of borrowed capital usually from a broker to invest in currency, security, stock, etc. If a trader is trading a 100:1 leverage, it means he is handling $50,000 with only $500 of his own money.
- Margin – It is simply the amount of money required to engage a leveraged position as determined by a broker. When a broker requires a 10% margin, it means traders would have to pay 10% of the total position value in their account to hold a trade.
- Long – is a term used when a trader is buying a currency pair expecting that it will increase in value.
- Short – is a term used when a trader is selling a currency pair with the expectation it will decrease in value.
- Lot – it is the standard unit of a currency traded in the foreign exchange market. A standard lot is 100,000 units, a mini lot is 10,000 units, a micro lot is 1,000 units, and a nano lot is 100 units
- Pip – it is the short form of percentage in points. It is the one hundredth of 1%, and it is indicated by 0.0001. It is the smallest price change in value as far as currency pairs are concerned.
