Forex trading has a reputation for being a tough nut to crack. People think it is a risky activity where huge sums of money are lost each day.
In truth, it can be risky, but as long as you take sensible precautions, it’s no riskier than any other type of trading. In this article, we are going to offer some tips to get you started.
Be Realistic
The first bit of advice we offer is that you must berealistic about your chances of making money. Rome was not built in a day and most traders don’t make money overnight. It takes time to learn the ropes, get used to how forex trading works, and develop a trading strategy.
If you take it slowly and spend sufficient time on the basics, you should make money. But don’t expect to make a fortune immediately.
Open a Trading Account
Trading in forex is very easy for beginners. As long as you have an internet connection and an internet-enabled device, you can have a go. To get started, you need a trading account with a broker. There are many well-known brokers out there, including IG, easyMarkets, and ETX. Read reviews and find forex brokers that tick all your boxes.
Open a demo account first. This lets you learn the ropes, find your way around the trading platform, and develop a usable trading strategy with zero risks.
Choose a Currency Pair
Currency is traded in pairs. Popular pairs include GBP/USD, EUR/USD, and USD/JPY. All the main forex trading brokers offer a wealth of different currencies, including exotics like cryptocurrencies. When you buy and sell currency, one is priced against the other. For example, a quote from a forex UK broker for GPB/USD 1.24 means one GB pound is worth 1.24 US dollars.
The major currencies are more liquid, and therefore more volatile, but their spreads tend to be lower. EUR/USD is the most popular, but don’t be afraid of trying an exotic pair. In general, though, it is a good idea to stick to a pair that includes the currency from your home country, as you will be more familiar with the pressures that affect it.
Spot Forex vs. CFDs
In spot forex trading, you buy and sell small amounts of currency. CFD trading is slightly different, in that you open a contract with a broker which predicts a price movement. If you guess right and the price moves in the right direction, you make a profitand vice versa.
Use the Tools Provided
Forex trading platforms come with a host of tools. These are designed to make trading easier and less risky. Use technical indicators to analyzethe markets and automated trading functions to carry out trades when you’re not at your desk.
Managing Risk
Always have a risk management plan in place. Have a trading budget and stick to it. Use stop losses. Leverage can maximize your profits, but it can also increase your risk. Tread carefully. Set limits and always have money in place to cover your losses.
Forex trading can be profitable but start small and keep it that way until you are making a consistent profit.
