Foreign exchange or Forex trading refers to the buying and selling of currencies based on movements in the international currency market. It is very similar to when you exchange your local currency for a foreign currency before going on vacation abroad – though this happens on a much larger and complex scale.
Newer and faster technologies are making Forex trading an interesting option for modern investors. If you too really like the concept of Forex trading and want to get started, here are the Top 5 things to keep in mind as a beginner in Forex Trading:
1. Do your Homework
This is not an Optional Step – It’s mandatory. Forex Trading is more suited for experienced investors or those who have a genuine interest in Forex and International Currency Markets. To make the most out of this investment opportunity, and more importantly to be conscious of the risks your investments will be faced with, you must be well-acquainted with the terms and jargon of the field. You must study what Forex Trading is all about, as it requires specialized knowledge which takes time and effort to accumulate.
An important point to consider is that Forex Trading is very unique – hence even though one may have experience in Equity Trading, it is still important to study. For example – factors influencing price movement in Forex markets are different compared to those for equity markets.
2. Make a Plan
If you want to succeed in Forex Trading – Make a Plan. Set guidelines and a roadmap that will help you reach your goals. Also, recognize your risk tolerance capacity and the reality of your current financial situation. Given that Forex Trading is high leverage and high investment option, it is important to understand how much loss you can bear without getting burned out of your position.
To better manage your risk and protect any potential gains, use Stop Loss and Limit orders to exit positions at your set price.
A clear plan will help you maintain discipline in Forex trading.
3. Find a Good Broker
Your Forex broker has a key role to play in ensuring that you have a great experience trading. Hence work with someone who matches your expectations and investment style. Here are some points you should consider while selecting your broker:
Reputation & Regulations:
Ensure that you are working with a SEBI registered entity. Make sure to check for any previous regulatory lapses or negative incidents
Check if you have adequate features like ease of deposits and withdrawals, leverage and margin offered, any deposit requirements, etc
Forex Trading is Open at all hours, so look for a broker who can offer you support when you need it. Also, check how easy or difficult it is to connect to someone and get your query resolved
Fees & Costs:
This is actually quite obvious! Ensure that you are aware of all fees and costs that your broker will charge you. However, keep the other parameters in mind as well when you look for costs.
4. Stay away from Emotional Trades
Fear, anxiety, excitement, and overconfidence, – are some of the common emotions that traders go through. As a beginner in Forex trading, you will definitely go through this rollercoaster of emotions. However, you should not allow emotions to take over your trading plan. Gaining control of your emotions and avoiding making an impulsive trade decision are ways to be a sensible Forex Trader. Try to remember these 3 easy ways to manage your emotions while trading:
- Evaluate the opportunity logically
- Stick to your Trading Plan
- Don’t get carried away by Market Noise
5. Develop the Right Attitude for Forex Trading
There is no fixed formula for success in Forex Trading. However, your attitude and mindset play a significant role in determining your trading strategy. Traits to develop:
- Patience: You must be ready to hold and wait for prices to reach your expected levels. You must also have the patience to wait for the right time to enter or exit favourable positions
- Discipline: You cannot be a successful trader if you lack discipline. You must be able to follow your Plan strictly and not get carried away by reckless or impulsive movements.
- Realistic Expectations: Always be aware of reality, and base your expectations on the same.
You can progress as a Forex Trader through self-analysis and by staying away from fear and greed. However, these skills need to be practised and sharpened over a period of time.
Add Forex to your investment portfolio to make it diverse and more dynamic as this investment opportunity trades around the clock, offers high liquidity, and has the potential for high returns. However, remember that Forex Trading also comes with high risks. It is advisable to go for Forex Trading once you have covered your basic financial goals.