Forex Trading – a Guide for Beginners

Why do people start trading Forex?

Let’s put it this way, the worldwide Forex trading market is worth $1,934,500,000,000. Around 44% of the traders are millennials, also called Digital Natives. Why do millennials trade currencies online? Because they are comfortable with using technology, and Forex trading allows them to make money without leaving their house. Before placing a trade, they conduct mobile searches to find out what the results of statistics are and what business has higher chances to turn profitable. The Forex trading industry provides numerous chances to the ones who are willing to take a risk and invest in currencies. 

So, if you want to enter this exciting world, you should research and learn the basic techniques you need to use to place successful trades. Here is a guide that can help you. 

Is currency trading the right thing for you?

Before trading Forex, you need to ask yourself if investing in this market is the right move for you. For some people, it’s a waste of time and money because they have no skills or knowledge to place a trade. If you don’t know if trading is the right choice, you should try to figure it out before investing large amounts of money. 

Ask yourself why you want to trade currencies. Are you doing it because you want to earn money? Do you find it an interesting venture? Do you compare it to solving a complex puzzle? If you only want to earn money then you should probably look for something else. You can make money when trading currencies, but it takes a while until you understand how the market works, and you’ll probably quit before earning income. 

Trading is about numbers and analysis. If you don’t enjoy numbers and you don’t have an analytical mindset, you’ll probably fail. However, if you are a dedicated worker, you have chances to succeed because you can educate yourself. 

To be a successful trader you need traits like the ability to focus, discipline, patience, and a calm mind.

Are you tolerant to risk?

If you concluded that trading Forex is the right fit for you, then you should ask yourself if you are tolerant to risk. How bad does it hurt you if you lose money? You need to understand how you react when you lose money because it influences the methods you should use to trade. Additionally, it will also influence the type of trader you are. For example, if you are risk averse you should prefer long term indexes. If the risk doesn’t scare you, you can try daily future or stocks. 

The general rule is the higher your tolerance is, the shorter the trade period should be. Risky investments require aggressive methods and you should understand if aggressiveness is a feature you have. You may find difficult to estimate your risk tolerance until you start trading, so to ensure you won’t faint when you lose money, you should invest a small sum first. 

Do you have plenty of free time?

You need to determine how much time you have to trade Forex because it influences your investment strategies. If you have two or three free hours daily, you’ll have no issue to watch the markets and to create an investing plan. When you have less than an hour you need to spend multiple days to identify the best trade, and then to invest in a long-term fund or index. 

Where do you start?

Now you know how risk tolerant you are, and how much time you have to trade Forex. You only need to figure out where to start. Your education influences the way you start. If you have basic knowledge in Forex you should learn more about the techniques, methods and strategies that can help you make profitable investments. Successful entrepreneurs are not born, they are made and education has a major impact on their success. First you need to invest time and money in improving your education and skills. Then you should find a mentor that can assist you when you place your trades. 

Third, you need to identify the type of securities and assets you prefer to trade because according to them you’ll choose a brokerage firm or broker to facilitate your access to the market. The broker you collaborate with directly influences the tools you can use, the fees you pay, and the final returns you get. Choosing an FX options broker could be the way to go once you start understanding the forex game. It’s always wise to read an ICMarkets review before choosing the broker to find out more about the advantages they provide. 

Develop your own strategy

You may’ve noticed when reading this article that we used both the terms investment and trading, but it’s important to note that it’s a slight difference between the activities an investor and a trader do. Traders actively search for market movements that can bring them profit, and investors wait their long-time movements to become profitable. Forex traders make hundreds and even thousands of trades within a few days, while an investor makes a single move and waits even years to see if it gains money. 

If you want to become a trader then you need to create a strategy that brings you profit. Similar to any other business, you need to create a plan that follows your entrepreneurial goals. Your plan should help you make decisions in challenging times when your emotions could take control of your actions. 

When you create a strategy, you need to consider your market ideology, goals, and factors that can influence its success. No matter what strategy you prefer, you shouldn’t place more than 5% of your active capital on a single trade. Don’t forget to include the risk limits you are willing to take when you place a trade. If you don’t know what they are, you should ask yourself how much you can lose in a single trading session. Then estimate how much you afford to lose in a single trade. 

Only because you may experience some beginner’s luck with your first trades, it doesn’t mean you should continue to research the market and to constantly look for new trading strategies. 

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