Foreign Exchange (Forex or FX) trading surged in popularity over the last few decades. What was once the preserve of big financial institutions and professional traders only, has been opened up to the masses thanks to the internet and the advancement of technology. Now, anyone with a mobile phone and an internet connection can live out their own Wall Street or Wolf of Wall Street fantasies. However, it isn’t for everyone and in fact, less than 5% of forex traders actually make consistent profits trading the financial markets. Here, we will look at what’s involved in Forex trading and what needs to be done to at least give you a chance of making money trading forex.
First, let’s start with what exactly is forex trading? Put simply, forex trading is the simultaneous conversion of one currency into another. When we go on holiday to Spain and we buy Euros with our British Pounds, this is a basic form of forex trading. The exchange rate between the two different currencies is based around a huge number of variables but essentially the supply and demand, determines exactly the amount of Euros you will get for your GBP. As the supply and demand for the two currencies change as does the exchange rate, meaning if you bought the same number of Euros a day later, it may cost you more or less than the previous day depending on the fluctuation in prices.
Now we know what it is, what’s needed to get started? Before anything else, the first needed is the right attitude. To make money trading forex a clear commitment to time and money is needed. Moneywise, you should only invest money that you can afford to lose. Micro accounts start from as little as £10. Obviously, this won’t make you money but will give you the opportunity to trade for real money with little risk. When it comes to the time commitment, you will need to be honest with yourself regarding how much time you can effectively commit to trading – the studying, the trading and the analysis. As with most things in life, the more you put into something, the more you get back. Forex trading is no different, the more effort and money you put into it, the more chance you are giving yourself of getting substantial back.
Choose Your Broker Carefully
Trading forex is carried through the services of a middleman – a broker. With literally hundreds of different online brokers, finding the right one for you can be daunting. The most important factor to take into consideration is the regulation. Only choose an online forex broker that is regulated by the UK, EU and Australia. The reason for this is to ensure that your money is safe and that you have a strong level of protection with a broker that is regulated, governed and audited by a reputable regulatory body. Once you have confirmed their regulatory status, test and compare:
Customer service – how professional and accessible are they?
Banking methods – Do they have a good selection of payment methods
Free demo account – Great for trying out strategies
Low Fees / Commissions – What are there total costs of trading, including any withdrawals
Wide Range of Assets – Having a good selection of tradable assets opens up profit opportunities.
Find a broker that ticks your own particular boxes. The site must be easy to use and something you feel comfortable with.
Knowledge is Power
To be successful at forex trading, a certain level of knowledge of the financial markets is needed. You will need try out several different trading strategies until you find what works with you. The three most popular trading strategies for a beginner are:
Day Trading Strategy: This involves exiting a trade before the day comes to an end. This helps to prevent any damages that can occur whilst you sleep.
Trend Trading Strategy: This is where you follow the trend in order to determine the direction that the prices have been taking.
Swing Trading Strategy: A slightly more complex strategy which is normally used for trades that last from one day to one week.
Before you even try a strategy, you will need to get a grasp of the charts and how they work. A good place for beginners to start with is getting stuck into a comprehensive beginners guide to forex like the one here.
Once you mastered the basics of the charts and how to read them, the next step is choosing your assets to trade. It is highly recommended that beginners to forex start with just one or two assets to trade. By focusing your research on just a couple of assets, you give yourself the best chance of mastering that asset. Once mastered, you understand every little nuance and the reasons why it moves as it does, making its future direction easier to predict. A good asset to start with is the Euro- US Dollar currency pair – EUR/USD. This is because it is the most traded asset and there is a plethora of information readily available at the touch of a button.
Lastly, when it comes to knowledge, it is imperative to keep abreast of the daily investing news. Set aside some time to have a flick through the financial news and give yourself a rounded view of the latest events affecting yours and other assets.
Keep Your Emotions in Check
The last and often overlooked factor in whether or not you can make money trading the forex markets online is your own self-discipline. To make money trading the markets you need to keep your emotions in check and be able to walk away from losing trades and also not get carried away when on a winning streak. This is easier said than done as we get emotionally attached to any investment, chasing losing trades or ‘doubling up’ on winning ones. In the long run, the most successful traders are the ones that leave their emotions at the door and out of trading altogether.
Have You Got it What it Takes?
The answer is probably not. But for around 5% of traders who can do all the above, trading the financial markets can be a lucrative full-time path to take. All-in-all, if you want to try forex trading the simplest advice to take is to start small, put in the hours and keep the risk to a minimum and you never know, you may well be living the Wall Street dream soon enough.