Forex trading can be likened to a simple buy and sell business where you “buy low and sell high”. Buying and selling foreign currencies follow the same principle in order to gain profits. However simple currency trading may seem, perceptions as to the real underlying value of any currency may vary from trader to trader which complicates the otherwise simple buy and sell decision making processes involved. Add to that the fact that there are a lot of variables that can influence the value of a currency made even more complicated by the varying opinions different people and even market experts have about them.
Here are some forex trading tips to help you wade through the seemingly confusing ocean of foreign currency transactions and increase your chances of making more profitable trades than losing ones.
- Know what moves the market or what factors affect price movements. Knowledge of what affects the underlying factors that influence exchange rates will make you a smarter trader and enable you to make a more intelligent investor who bases trading decisions on existing fundamentals and not on mere gut feel about where prices are headed. Knowledge mitigates the underlying risks in currency trading.
- Never trade capital you cannot afford to lose is one of the logical forex trading tips you will most likely encounter. If the money you use to trade currencies will drastically change your current and future lifestyle, then don’t trade forex at all. It will best to just leave the money alone. Using money like your retirement fund, or educational fund for the kids are some of the funds that you should never put to risk, especially with a rather volatile market as the forex market. Because you cannot afford to lose these funds, you will end up an emotional trader whose trading decisions are constantly beclouded by fear, anxiety, and indecisiveness.
- Work with brokers who have a genuine interest in helping you take informed trading decision and not with brokers who will trade against you and profit from your loss. Know the difference between ECN brokers and market maker brokers so you can avoid ending up as the milking cow of brokers out to exploit your lack of knowledge and experience.
- Gain more experience by trading with demo accounts first. Never commit real money to forex trading unless you are fully confident and knowledgeable enough to make balanced trading decisions. Pick up as much forex trading tips from experts as you can and take as much time as may be necessary to master currency trading. Don’t be in a hurry as you are under no pressure to build your wealth.
- When you start to trade, focus on one currency pair first. Expand your sites to other currency pairs only after gaining experience.
- Never trade without a stop. A stop is an essential part of a money management strategy without which your losses will run up to a point you won’t be able trade again unless you put in more capital. Without a stop, you are liable to see your profits run into losses too. Stops are not arbitrarily set but are part of a carefully prepared trading plan which brings us to a final point and last of the forex trading tips for this article.
- Never trade out of whim or gut feel. Trade according to a well studied and carefully computed trading plan that incorporates a prudent money management strategy.