Today, we will look at how you can begin to make inroads to start forex trading. Then, we will rewind right back to the basics, explain definitions you may not understand and then give you some tips that professional traders often use to amplify their trading psychology.
Whether you want to learn forex trading step by step or already have a good knowledge of the industry, we will cover a broad range today that should help you on your trading journey. When you start forex trading, there are some key phrases and definitions to imprint into your mindset and method.
What Is Forex Trading?
Before we discuss how to get started trading forex, we should define forex trading. The foreign currency market is the largest trading marketplace in the world. For those on the outside looking in, there is occasionally a mistaken belief that the stock market or commodity markets, such as oil, are more significant than forex. However, this isn’t the case. On average, the forex market is worth over $6 trillion daily in trading volume.
It’s so enormous, but why? Well, all of the top world currencies are bought and sold in interchangeable pairs. So even though the US Dollar is the strongest and often referred to as the world currency, there’s also a multi-billion-dollar market in other currencies.
Due to the fact these countries span several time zones, the forex market is a 24-hour market, unlike the stock market, which is open during New York trading hours. It is essential to realise this key distinction if you’re looking at how to start forex trading on your own.
Due to the 24-hour market often sees spikes in activity at unusual times, such as the opening of the London and Asian markets. It is a good idea to keep an eye on these times if you’re looking to start forex trading regularly. For a beginner, we appreciate that this may sound daunting. However, if you’re wondering how to do forex on your own, you need to be completely aware of the market and how it operates.
What Other Currencies Are Used?
Other than the US Dollar, the other key currency pairings which see the most activity include
- Euro (EUR)
- Canadian Dollar (CAD)
- New Zealand Dollar (NZD)
- Australian Dollar (AUD)
- Japanese Yen (JPY)
- Great British Pound (GBP)
Knowing how to trade forex begins when you understand the activity that drives the value of these currencies in either direction. So, if you want to know how to start with forex trading, start with the basics, such as the more prominent currencies and some indicators to look for when trading.
These aren’t the only available currencies. You can also trade commodities such as gold. The pairing for gold is a US Dollar pairing symbolised as (USD/XAU). In addition, you can find other commodities such as silver which is (USD/XAG). If you’re interested in trading commodities, there are several ways to trade precious metals.
However, if you’re looking for the basics of how to get into forex trading, sticking to the main currencies and steering away from commodities is probably a good idea while you’re learning the ropes.
How Do I Start Forex Trading?
If the foreign currency market interests you, this will be a question you’re asking yourself.
Due to the availability and accessibility of forex trading platforms online, now is one of the most accessible times to start forex trading.
With great opportunity comes great responsibility. Therefore, it is essential to note a few vital things before selecting your chosen exchange: currency and how much capital you wish to use. Deciding to start trading forex is a bold, exciting and tense decision. Even if you believe you have what it takes to successfully trade forex and trade it as a full-time job, you need to be aware of the serious risk involved.
Ultimately, just because the market has acted one way historically doesn’t mean it will do the same again. Professional traders often lose money, and risk management must be critical in your strategy. Even if you’re using more straightforward methods, such as swing trading, instead of more complex strategies like Japanese candlesticks, you aren’t guaranteed to make a profit.
Knowing how to start forex trading doesn’t involve breaking down chart analysis and conducting hours of research. While these tools won’t harm you, it covers much more than that. An effective strategy starts even before you have entered any live position.
The risks remain the same for traders with a long-term plan or those with a much shorter-term approach, such as scalping. However, managing them properly gives you genuine protection against market volatility or crashes.
Controlling Negative Emotions
Unable to control negative emotions is the number one cause of bad trades. It can lead to revenge trading and other types of trading where you are not using rational thought processes or psychology to enter the market at an opportune moment. If you want to understand how to do forex on your own, you need to appreciate that this is the leading reason traders lose money.
This doesn’t just apply to beginner traders, either. Many professional traders have fallen foul of trading using negative emotions. Learning how to control them is critical.
One of the key ways to control your emotions when growing your understanding of how to trade currency is by using limits. This includes a stop limit or a take profit limit. If you have performed enough quality research before your trade, you will know where the take profit and stop loss levels lie.
Long-term traders, such as Warren Buffett, do not use stop losses. It’s difficult to disagree with Warren Buffett, but many of his investments are long-term stock investments. Forex trading is a different ball game. Setting up stop loss in a volatile, 24-hour marketplace is essential if you don’t want to be subject to a sharp, damaging loss.
Dollar Cost Averaging
If you’re trading over a more considerable period, then Dollar cost averaging is an excellent way to insulate your risk. If you want to hold an asset long-term, any fluctuations in the price shouldn’t bother you if you’re looking for a long-term return. Therefore, if the price drops sharply in the short term, you can purchase your asset at a lower price.
Let’s say your original investment cost is $0.40 per unit. If the price drops to $0.35, but you believe the asset will reach $1 in the long term, if you buy the same amount of the asset at $0.35, then your average entry is $0.375.
Ultimately, this is a better way of shielding yourself against risk. If you then have to sell the asset in the future, your overall loss is minimised, too, because of your lower entry.
Choose Your Broker
With so many brokers and exchanges to choose from online, with many offering introductory deals, it is challenging to settle on a specific provider best suited to your trading needs. However, choosing a provider that suits you is crucial if you’re looking to start trading forex effectively.
Firstly, you want to ensure that the fees, such as commission and spreads, are competitive compared to competitor exchanges. For example, if you start forex trading and want to use day trading methods, you could see these fees ramp up. Therefore, ensuring you select a competitive broker with low fees is a great way to begin.
Secondly, a broker with a varied selection of currencies is a solid indicator that they’re a reputable provider. A reputable provider usually has plenty of liquidity on their exchange and a sound business model.
Looking at some online reviews or comments that people leave on social media is essential. This will further indicate how trustworthy the provider is and whether they’re suited to your strategy.
Thirdly, a provider regulated across all the currencies it handles is another sign that you’re dealing with a company that knows what they’re doing. Ensuring a provider has all the currencies you want when you start forex trading is pivotal.
Finally, a broader point you could apply to all businesses is ensuring that customer service is high-quality. Again, you can quickly check this online, whether it is on social media or via reviews.
Start Forex Trading By Learning About The Markets
There are two main categories for educating yourself about the forex market. First, learning about the subject is crucial when trading forex. For instance, what causes the price of the US Dollar to rise or fall? Often, it will be economic news that moves the price of these assets up and down.
Economic & World News
If there’s an interest rate hike, this impacts the Dollar. If there’s inflation, this also affects it too. Performing adequate research to understand what moves the market is critical if you’re looking for a strategy that works. Even if the US Dollar is strong, this can harm global economies.
All of the world’s top currencies interchange with each other and are available in their separate pairings. Therefore, it is a juggling act of various components to ensure you know the underlying causes and triggers of price movements.
It isn’t just economic news that can drive it. Big world news can also induce a shock in the market. This includes political instability, black swan events like the financial crash in 2008 or other factors such as the outbreak of war or the cost of living crisis.
These types of issues impact market sentiment and consumer confidence. Although the causes can be vast and the solutions can be challenging to find or manage, it ultimately leads to fewer people wanting to trade with their money, which brings the market volume down and the price of assets.
The second category is to apply knowledge from proven operators in the forex market. You can find plenty of literature online, and although some of it is very useful, it is vital to be cautious. Nevertheless, adequately sourced and highly-rated literature on the topic can prove invaluable.
In addition, the best learning doesn’t have to come from books or live news. You can seek out a mentor who can guide you. It doesn’t need to be a one-on-one tutor, either. You can learn how to join forex communities online.
You must be cautious when it comes to finding a mentor. Unfortunately, although the internet has brought a lot of markets together, and many traders use it to share information for the greater good, there are also people acting in bad faith.
Luckily, a quick internet search can corroborate the information that rogue traders are selling you. For example, if they claim to have worked for big investment banks and have a proven track record, find them online and see what people who use their service have had to say.
Step by step forex trading is necessary if you’re a novice. You don’t want to miss any key pieces of information. You may start forex trading from scratch or begin forex trading from other markets. However, as long as you have enough practical knowledge to start forex trading with a plan, you’re already starting with the correct mentality.
Although starting forex trading may seem intimidating and a jungle, it is far from it. Like most things, the fear of the unknown usually ultimately outweighs the practicalities of reality. The internet has been the most groundbreaking tool to start forex trading as a retail trader.
As long as you pick up the main nuggets of knowledge we have given you today, you’ll start on a better footing. Risk management, developing your knowledge and seeking out a reputable broker or mentor is essential. By implementing this into your mentality, you will start forex trading with all the necessary tools.
Once you have these tools, you learn when you start forex trading with your own money. Unfortunately, many retail traders lose money in the first 12 months. Some estimates have put this number as high as 80%. Unfortunately, sometimes this is the best lesson. Nobody wants to lose money, but the experience can often be the best teacher.
If you want to make easy money or life-changing wealth that somebody on social media advertised, you should think again. To start forex trading, you need to have the right mindset and realise that there are no such things as a get-rich-quick scheme. It takes effort, time, resources and money. Once you understand this clearly, you can start forex trading with clear expectations and grounded psychology.