The global forex market is the largest financial market in the world1 and the potential to reap profits in the arena entices foreign-exchange traders of all levels: from greenhorns just learning about financial markets to well-seasoned professionals with years of trading experience. Because access to the market is easy--with round-the-clock sessions, significant leverage, and relatively low costs--many forex traders quickly enter the market, but then quickly exit after experiencing losses and setbacks. Here are 10 tips for aspiring forex traders to help them avoid losing their money and keep trading in the competitive forex market.
Do your Homework
Just because forex is easy to get into doesn't mean due diligence should be avoided. Learning about forex is integral to a trader's success. While the majority of trading knowledge comes from live trading and experience, a trader should learn everything about the forex markets, including the geopolitical and economic factors that affect a trader's preferred currencies.
KEY https://infratraders.com/ TAKEAWAYS
* Avoid losing money on foreign exchange by doing your research and finding a reputable broker.
* Use a practice account before you go live and be sure to keep analysis techniques to a minimum in order for them to be effective.
* It is important to practice good money management and to start small before you go live.
* Keep a trading journal and control the amount of leverage.
* Be sure to understand the tax implications and treat your trading as a business.
Homework is an ongoing effort because traders must be able to adapt to changing market conditions, regulations, or world events. Part of this research involves the creation of a trading plan, which is a systematic method of screening and evaluating investments, determining how much risk should be taken, as well as formulating short-term or long-term investment goals.
Find a Reputable Broker
The forex industry has much less oversight than other markets, so it is possible to end up doing business with a less-than-reputable forex broker. Due to concerns about the safety of deposits and the overall integrity of a broker, forex traders should only open an account with a firm that is a member of the National Futures Association (NFA) and is registered with the Commodity Futures Trading Commission (CFTC) as a futures commission merchant.2 3 Each country outside the United States has its own regulatory body with which legitimate forex brokers should be registered.
Traders should also research each broker's account offerings, including leverage amounts, commissions and spreads, initial deposits, and account funding and withdrawal policies. The information should be available to a customer service representative who will be able answer any questions about the firm's services or policies.
Use a Practice account
Nearly all trading platforms offer a practice account. Sometimes called a demo account or simulated account, this allows traders to place hypothetical trades and not have to fund their account. Perhaps the most important benefit of a practice account is that it allows a trader to become adept at order-entry techniques.
Pushing the wrong button to open or close a position is one of the most damaging things for a trader's trading account. It is not uncommon, for example, for a new trader to accidentally add to a losing position instead of closing the trade. Multiple errors in order entry can lead to large, unprotected losing trades. Aside from the devastating financial implications, making trading mistakes is incredibly stressful. Practice makes perfect. Experiment with order entries before placing real money on the line.
Find a Reputable Broker
Forex brokers are subject to less supervision than other markets. It is possible to do business with less-than-reputable forex brokers. Forex traders should only open accounts with a firm that is a member the National Futures Association (NFA), and is registered with Commodity Futures Trading Commission(CFTC) as a futures broker.
Traders should also research each broker's account offerings, including leverage amounts, commissions and spreads, initial deposits, and account funding and withdrawal policies. A helpful customer service representative should have the information and will be able to answer any questions regarding the firm's services and policies.
Use a Practice account
Nearly all trading platforms come with a practice account, sometimes called a simulated account or demo account, which allow traders to place hypothetical trades without a funded account. The best thing about a practice account is its ability to help traders master order-entry techniques.
Few things are as damaging to a trading account (and a trader's confidence) as pushing the wrong button when opening or exiting a position. It is not uncommon, for example, for a new trader to accidentally add to a losing position instead of closing the trade. Multiple errors in order entry can lead to large, unprotected losing trades. Aside from the devastating financial implications, making trading mistakes is incredibly stressful. Practice makes perfect. Experiment with order entries before placing real money on the line.