The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies.
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The foreign exchange market (or forex for short) is a giant, worldwide market where currencies are exchanged. This market is one of the largest in the world, with upwards of $4 trillion being exchanged on a daily basis. This also makes the forex market one of the most liquid markets in the world, and one of the most lucrative to trade, provided you know what you’re doing.
Unfortunately, the forex markets are extremely difficult to trade, and something like 95% of traders fail in the long run. If you’re just starting out in the world of forex trading, there are some simple and easy tips that might help you survive long enough to figure out how to turn a profit.
1) Money Management
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This is the first lesson any trader needs to learn, how to prevent themselves from getting a margin call. The typical advice you’ll hear from traders is to only risk 1-2% of your account on any given trade. This means that if your stoploss is 100 pips, change your position size to reflect a 1-2% loss in the event that price goes against you and hits your 100 pip stoploss.
2) Demo Accounts
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Don’t just dive in with your life savings, open up a demo account with a broker, and get a feel for the interface. This will give you a basic introduction to the currency pairs, and allow you to start developing your own personal style without bankrupting yourself in the process.
3) Emotions
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Don’t trade on emotions, don’t try to “get back at the market” or other silly things. This is a quick and easy way to a margin call. Being angry, excited, nervous, etc… will prevent you from making well thought out and logical trades. Keep a level head while you’re trading, and if you can’t, walk away.
4) Getting “help”
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Often beginners go onto forums and beg for someone to tell them when to trade. Or they sign up for a service which promises signals to buy and sell. Don’t rely on other traders for this kind of information. If someone is just providing you with a buy and sell command, what exactly are you learning? Nothing.
5) Too many indicators
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Don’t flood your charts with too many indicators. They’re not actually telling you anything that’s not already on the screen (because they’re 100% based on price action), so adding too many will just confuse matters. Keep your screen clean and just choose one or 2 indicators that you like.
6) Stop losses
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The common advice is to use tight stop losses, but this is usually a quick and easy way to lose all your money. If you’re trading, put in a wide enough margin of error so that the trade can develop.
7) Learn your hours
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You want to trade during periods of high volume, not during the after hours. Price moves relatively little in after hours trading, and spreads are much higher, so try to stay out during these times. The best hours to trade depend on the currency pair you’re trading. So if you’re trading GBP/USD, wait for the London open.
8) Over Trading
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It’s tempting when you’re first starting to throw yourself into the deep end and just stare at the charts for hours on end. This is a mistake, you can only give quality focus for so long (a couple hours for most people). Take breaks, the market will still be there tomorrow.
9) Learn your currency pair
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When you start out, learn just one currency pair. Study it, read the news, watch how it reacts to news reports and economic forecasts. Each pair is different, and jumping between them is a recipe for disaster.
10) Don’t give up!
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“No great achievement is possible without persistent work.” – Bertrand Russell
Finally, don’t give up! The forex market is a tough world, but nothing that’s worth having comes easy. Some say that to become an “expert” in a field, one must put in at least 10,000 hours of work and study, and the forex market is no exception. There are enormous riches to be made in forex trading, so getting good at it will take time and effort.
by Joel H. Simon, for Consumer Top 10.
