We all have heard of stories about people earning lots of money through trading. As fascinating and promising as it sounds, trading has its own difficulties and rules. It is not a very easy thing to earn money through FX trading, and it involves a very steady and patient approach. You should be open to learning and new knowledge to become successful in this field. It also includes many levels of smart decision-making skills. If you are confused about how to start the learning process, we have put together a guide just for you. This guide will walk you through the primary and essential aspects of Forex trading that you should know before making a start.
WHAT? AND WHY?
Foreign Exchange trading or FX trading works based on exchange rates of currencies that belong to different pairs of countries. The FX trading market is a 5 trillion-dollar a day market and is the largest financial market around the globe. Moreover, you’ve got a lot of time since this market is open 24/5, with the weekends as exception. There is no concept of “closure towards the end of a business day” in the Forex market. The important catch here in this platform is to analyze the shifts in Forex markets and planning accordingly.
Professional and amateurs alike are more interested in FX trading than any other form of trading for various reasons. The following list describes these reasons.While the ones mentioned above are considered as the primary reasons to prefer this platform over others, there are other reasons too.
As mentioned earlier in this article, the FX market is open for more hours than stock markets. This gives you access to continuous trading for Five days straight, without any interruption, which in turn results in more profit.
Moving your currency in and out of the market is comparatively easier.
The transaction costs involved with FX trading are very low.
You can potentially gain profits in both of the rise and fall of prices on an FX platform. This drastically increases the potential of earning more..
TERMS YOU NEED TO KNOW
In order to get a good hold of the basics of this subject, you need to understand the following terms.
Foreign Exchange Trading: Trading the currencies of two different countries against one another is called FX trading. For instance, if you think that Euro is going to increase in value when compared to USD, you can buy a EUR/USD currency pair.
Forex Brokers: Brokers are intermediate systems between the interbank(the network of trading banks) and the trader. The process of opening an account with an FX broker is somewhat similar to the process of opening a bank account.
Demo accounts: A demo account, as the name suggests, serves as a tool to help you understand how trading works. There is virtual money involved in this tool, and hence you can begin trading and practice before doing it in real-time.
Trading account: It is the real-time account you open with the FX broker that helps you to place your money wherever you want on the foreign exchange market. It is also known as a “Forex account.”
Currency pair: Two currencies that are used in the trade make a currency pair. It includes the Base currency and the Counter currency(Quote currency). For example, USD/EUR here, USD is the base currency, and EUR is the quote currency.
TRADING CAPITAL AND ITS IMPORTANCE
The best thing about Forex trading is that you don’t need to have a lot of money as capital. This is mainly because of the “Trade on margin” characteristic that allows you to trade more money than you currently have in your account. Surprisingly this will guarantee you more profits. Even though this method has a lot of benefits, there is one significant disadvantage. The risk involved is quite high when you trade using margin. The main tip to make use of this leverage properly is to have a clear idea before getting impulsive. The way you tie your account balance to your margin is very crucial. You need to be smart enough to make the right choices. This way, you can avoid a very drastic margin error. Margin trading can be beneficial if you used skilfully but can also end up disastrously. It can lead to dramatic profit as well as dramatic loss. Once you become more skilled, the risk involved will reduce. You should practice risk management. The best idea is to trade small in the beginning and eventually increase with experience.
MAKE BEST USE OF A DEMO ACCOUNT
A demo account helps you understand how trading works. There is virtual money involved in this tool, and hence you can begin trading and get some practice before doing it in real-time. Before you start investing real money into the market, it is best to get some experience using a demo account. Thus, you will gain practice to trade confidently. Keep yourself open to learning new strategies and updating old strategies.
FOLLOW THE TREND
You need to get a hold of weekly as well as daily trends to be successful on a trading forum. Have the habit of reviewing charts regularly and analyzing what is going on. You have to locate the right pattern that seems favorable to you and proceed with it. Target planning becomes a lot easier when you make a precise analysis and strategy. Strategically plan your entry and exit points with respect to the market, especially your exit points. Many beginners fail because they have not planned how they will exit the trade to capture profits and cut losses. This way, you can make reasonable gains in the beginning without involving lots of risk.
You need to keep watching the market and trade with flexibility. You can reap a lot of benefits by doing day trading. You need to learn how to analyze and read charts. There are different types of charts that represent price and volume and price changes. The prices are represented in many time frames in these charts. Learn how the prices vary with respect to different time frames. Technical analysis will help to a great extent. It is always better to keep the chart simple and informative. This keep the trading signals clear and obvious.
This method involves buying a currency that has a higher rate of interest and holding it against another currency with a lower interest rate. It is an excellent method to make money while the market is moving sideways but does involve currency risks like any other strategy. The advantage of carry trading is that, even when you are not trading, you will earn interest on your account every day.
The amount of interest paid is based on your trade size including leveraged amount so there is potential for leveraged gains. The difference in interest between the two currencies determines how much carry interest you will be paid.. The main down point to this idea is that you can take slightly larger risks because of them being offset by the interest. Some professionals make use of this strategy when the market is steady.
GET THE RIGHT BROKER
Forex brokers serve as the intermediate bodies between the trader and the network of trading banks around the world. Finding a trust-worthy and proper broker is very crucial. Even though there has been a dramatic increase in the regulations in the field of Forex trading, many people still come across brokerage scams. Before you start the process of opening an account with your broker, make sure of the reputation of the brokerage firm.
Go to the terms and conditions page on their website to make sure they are legitimate. Go through all the rules and conditions. Make sure the financials of the brokerage firm are publicly available. The two significant factors you need to look into in an FX broker are regulations and transparency of their financial statement. When you try FX trading to make money, you do not want the broker to shut down because of under-capitalization. If there are no proper regulations, your withdrawals and other transactions might not get processed and will leave you in great distress. Take a clear look at the reviews and ask around before choosing your broker.
FACTORS TO CONSIDER BEFORE CHOOSING A BROKER
Make sure that the platform has a simple and clear interface. You need to put a lot of effort into going through all the data while trading. Having a very confusing interface can add to the stress involved. Look for simple yet efficient tools inside the interface of your trading platform and put them to use. Look for options to configure the data according to your needs and convenience. Having a functional and user-friendly platform is the most basic necessity to trade efficiently.
COSTS OF TRADING
There are different types of commissions and fees involved with any trading platform. Make sure that you are not paying more than you are required to pay. When you have more spreads, over-night costs, and so on, your potential profit on a single trade move will get affected. Compare and analyze all the fees of the different platforms that are available and choose the best one to suit your trading style. Do not let all these fees drain your account balance. Work out how these fees affect your particular trading style. Day trading and swing trading will incur different types of costs so see which fees will most likely affect you and choose the broker that will charge you less for your particular trading method.
A specific exotic currency pair might have caught your eye, and your broker might not offer that pair. You need to be aware of the asset list (currency pairs & other) of your broker before making any decisions. Most brokers will have the information regarding their asset list open. There will not be much trouble if you like to trade with major currencies. But, in case you want to trade with exotic currencies such as the Swedish Krone, you need to verify with your broker prior to opening an account to avoid disappointment. If there is a lack of clarity from the side of the broker about this just choose another broker.
Technical errors and difficulties cannot be avoided entirely on a trading forum. You need to have proper assistance from the customer support of your broker during such times. Any good platform will have 24/7 customer support, live chat, telephone support, e-mail support, etc. Thus, you will have proper assistance in case you have doubts or if you face any issues. Lack of adequate or slow customer support might give you panic and stress if there is a problem. The trading response time also plays a significant role in defining the efficiency of a platform. Avoid slow platforms which will cost you money if your trade is slow or doesn’t go through.
METHODS OF PAYMENT
You need to have a clear idea of the payment methods that are used by your broker and make sure if they are suitable to you. The methods of depositing money also come into play. There are different options, such as debit and credit cards, Skrill, Paypal, and even cryptocurrency. Make sure that you are comfortable with both depositing and withdrawal methods that are used by your broker before getting started.
TYPES OF ACCOUNTS
There are different types of trading accounts, such as Bronze, gold, margin, VIP, and so on. The difference between these types usually lies on the spreads, access to data, leverage levels, etc. You need to do enough research before getting involved. Ensure the kind of account you are planning to get will cover all your requirements.
Making money through trading involves smart planning, execution, and tremendous amounts of patience. Being emotional during trading will lead to severe loss, and you will end up regretting the whole process. Keep learning and keep yourself updated. Giving sufficient time and thought to the process, and being patient is the key to success.