A Guide To Forex Trading
The world of currency trading, or forex as it is often referred to, is one which has slowly crept into the picture, with traders both new and experienced considering it as a viable option for their portfolio.
However, forex is very different to other markets and it is essential to understand the basic concepts before starting to trade.
Forex measures the movements of a pair of currencies against each other and it is possible to earn money, even in a bear market, making it a very different entity compared to the stock market. However, forex can move rapidly and heavily which can be great news if it goes in the right direction, but catastrophic if the market has swung in the opposite direction.
It is not unusual to see new traders wiped out by losses sustained in their first few trades as many people can get caught out by placing too much on each position. Experts recommend putting no more than 2-5% of your account balance on each trade; losing is part of the cycle, even for professional traders and it is important not to let one wrong move bankrupt you.
New traders must also conquer their biggest enemy to be truly successful: their own mind.
To be a successful forex trader takes discipline and the ability to overcome the natural human emotions of fear, over-confidence and pride. When a trade is going well it can be very tempting to keep trading even if you pass your pre-planned exit point simply because `you are on a roll`. Conversely, when you are losing money hand over first, it can be difficult to call it a day because that would mean accepting your losses; keeping going leaves the possibility open that the market may turn and you will be proven right.
Every trader, large or small, has to overcome this challenge and the easiest way to do this is by putting together a strict trading strategy. By planning every aspect and leaving less open to interpretation, there is far less temptation to simply go with the flow. If you think you might be tempted to ignore your plan, you can use stop losses and stop wins. These are orders placed when you open the position which will immediately and automatically close the trade once reached. They also provide traders with the confidence to leave their screens in the middle of a trading session, safe in the knowledge that their wins or losses will be collected in the same way as if they were there.
When it comes to forex practice really does make perfect (well, almost!) and most traders would recommend that novices spend as much time as they can on simulation accounts before entering into a live market. Every currency pair has its own unique way of moving and it is important to have an understanding of the subtle nuances before risking any money.
Forex trading has the possibility of earning significant amounts of money for those who have the time and patience to learn the market, but trying to rush through can end up in heavy losses and ultimately a short path to wipe-out.
