How to get started with forex trading
The forex market offers many opportunities for investment and potential profit that can suit a wide variety of trading styles and money-management strategies. There are, however, certain factors and guidelines that every new trader needs to consider in advance, so as to begin trading on a strong foundation. In this article, I will discuss these basic considerations for new traders and explain the steps you need to take to successfully set up your trading account.
Decide Your Risk
Every investment opportunity comes with certain risks, and trading forex is no exception. Before you jump into forex trading with both feet, it’s crucial that you determine the amount of risk you’re willing to take. All good traders know that when winning some trades, you may also lose some, because no one can predict the movements of the market with absolute certainty. When deciding, therefore, how much of your savings to dedicate to your trading account, be sure to choose an amount that, if lost, won’t cause you financial difficulties. That way you can trade without added stress and worry.
Choose the Right Broker
Determining your risk threshold will also help you choose the right forex broker for your trading needs. Although there are many differences between forex brokers, two of the major factors to consider when choosing the best broker for you are leverage and commission.
In forex trading, leverage allows you to control larger amounts of capital than you actually deposit in your trading account. For example, if a broker offers you leverage of 100:1, then for every dollar you deposit, you can manage 100 dollars. If you deposit 100 dollars, then you can actually invest 10,000 dollars. Although high leverage sounds attractive when thinking about potential profits, you need to remember that high leverage can also mean high risk if the trade turns against you. It’s important, therefore, to find a broker that offers flexible leverage options that you can customize to your preference and which won’t break your bank in the event of a loss.
Commission is commonly referred to as “the spread” in the forex world and refers to the difference between the bids and ask price of a currency pair. Brokers receive all or part of that difference in price as their commission for the trading services and platforms they provide. A few pips of difference, which is what the spread usually amounts to, may not sound like much, but if you’re trading big lots, it can easily add up to a significant amount. Before choosing your broker, carefully study the spreads offered for each currency pair you’re interested in so that you know how much your broker’s commission will be on your profits.
Educate Yourself Thoroughly
Just like any specialized field, the forex market has its own technical vocabulary and terminology that every trader needs to know well before beginning to trade. Terms like ‘bullish’ and ‘bearish’, ‘long position’ and ‘short position’, ‘stop-losses’, ‘trends’, and ‘moving averages’, to mention just a few, need to become as much a part of your vocabulary as the names of the different currencies you’ll be trading. If you visit forextime.com you’ll find a treasure trove of free educational material, from articles and tutorials, to seminars and webinars, and even a specialized forex glossary with definitions of all the terms you’ll ever need to know, so you can educate yourself and start trading wisely.
Practice on a Demo Account
Once you have found a broker that suits your trading style and have begun educating yourself on the forex basics, the next step is to open a demo account with your broker so you can put your learning into practice. A demo accounts allows you to simulate trading, but without risking your actual capital so that you can understand how your trades would turn out in real-life situations you notice any aspects of your trading strategy that don’t perform well on the demo account, make sure you educate yourself more on these areas before using them in your real account.
Forex trading can be an exciting and profitable venture, but only when approached with the same caution and diligence that must govern all investment opportunities. Successful traders understand that the forex market by its nature contains an inherent level of risk, and therefore take the appropriate measures to safeguard their accounts against this. In order to start trading forex successfully, therefore, it’s imperative to understand your risks level, find the broker that best suits your trading needs, and educate yourself as much as you can, both in theory and in practice.
•Mr. Akinyele works with ForexTime Nigeria.
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