Trading in the forex market is a relatively straightforward endeavor that simply involves exchanging one currency for another. Furthermore, the recent availability of online forex brokers makes executing a forex trade for someone who already has an Internet connection as easy as downloading free forex trading platform software, opening and funding an account with an online forex broker with as little as $100, entering their desired trade details, and then hitting a button to execute the trade.
Since such forex deals are typically done on a margin basis, the advantage of the high leverage available in the retail forex market means that you do not even have to put up $1,000,000 to control a position of that size.
Instead, you only need to place a small fraction of that on deposit with the broker as collateral in case the trade loses money. How much you will require depends on the broker you choose and your location.
While forex trading is relatively easy, developing the skills and discipline necessary to trade currencies and show consistent profits over time can take a novice trader many years to accomplish, if they ever manage to succeed at all. Accordingly, it makes sense for forex trading beginners to take some time to review the following four forex trading tips often endorsed by expert forex traders.
1. Educate Yourself About Forex Trading
The first forex trading tip for beginners involves making an investment of time (and perhaps also money) in the process of developing your knowledge about forex trading and enhancing your forex trading skill set. If you can avoid some of the most costly beginner’s trading mistakes by taking a good forex trading course, that alone will probably pay for your education. Some written forex courses and instructional trading videos can be found online free of charge, while more personal instruction or mentoring will probably require the payment of a fee.
2. Come Up With a Forex Trading Plan
One thing that distinguishes most successful forex traders is that they have taken the time to develop and test a forex trading plan with objective trade signals that shows consistent profitability over time. While this is not an especially easy task, and typically requires developing some knowledge about fundamental and technical analysis, going through this process will take the guesswork out of forex trading since you simply need to follow your system when making trade decisions.
3. Develop Firm Trading Discipline
Once a trader has developed a profitable trade plan, this might seem to set them up to make good profits over time. Unfortunately, this is often not the case. Perhaps the biggest downfall of a forex trader armed with a good trading plan is maintaining the discipline required to keep to their trading plan in the face of emotional responses like fear and greed that arise as the forex market fluctuates. Planning your trades and then sticking to your plan is one of the key steps toward becoming a successful forex trader.
4. Apply Appropriate Money Management Techniques
How effectively you manage your trading capital is a substantial determinant of success as a forex trader. This process typically involves sizing positions appropriately given your risk tolerance, portfolio size and expectations of profitability on a particular trade. Money management techniques also include taking steps to limit your losses, while allowing your gains to build up on winning trades and then protecting them once profits have accumulated to a substantial degree.
Ready to learn more? Check out these 6 killer trading tips for trading forex.