To start, you should understand exactly what leveraging is and how it affects your trading ability. Leverage is what allows us to trade on the forex markets, you are able to utilize leverage to trade high sums with less capitol. To explain; you can invest $200 cash from your pocket and leverage, which is basically borrowing, another $200 from your broker. This allows you to purchase $400 worth of stock with only minimal investment. This simple example is a 2:1 ratio, in forex; you are able to raise your leverage ratio much higher, all the way to 100:1.
It’s vital to have a good amount of leverage when dealing with currencies. There are days when the change in currency is only a few cents and benefits can only be gained by purchasing large amounts. Leverage allows lay traders to make profit from a system that was initially designed for banks and corporations.
When dealing with foreign exchange, conservatism is an essential trait. The ability to make large amounts of money in a short period of time is ever present; the possibility of loosing a lot of money is also there. Rash trading is the sure sign of a beginning trader that will wipe their account sooner rather than later. As a new trader, it best not to risk more than 4% of your account in any trade. This give you a cushion of protection so if you hit upon a bad patch of trading, you wont lose more that 4% of your assets. As you gain experience, you may learn when to risk more on a particular set of trades, but even as an experienced trader, you shouldn’t risk more that a conservative amount on any trade.
Research is a trader’s friend, take time and study the trends of the currency that you plan to trade. Each market is slightly different as is the timings of the market. The current political climate as well as the social climate affects how the currencies will rise and fall in a certain area. Avoid dealing in volatile markets until you have an accurate view of the trade trends. There are several trading tools available for forex trader that help chart hourly, daily and monthly currency trends. Studying those charts prior to your trade will increase your chances of a higher profitability rate.
Setting up a stop loss is an important step in your trading. These function as a way to limit your losses in the event that your trade slides into losses. Often is seems that markets are manipulated to fall below your stop loss point before they move back up, but this is simply a natural act of the market. There will be times when a trade will fall below its margins of profit, but not hit the stop loss target before moving back up, other times, you may find that the trade hits the stop loss and cancels out only to move higher moments later. You should place a stop loss order on every trade, regardless of how confident you feel in the trend analysis. The forex market is similar to the stock exchange in that profit or loss isn’t guaranteed. Demo trading is a great way to get practice and work on the trends without risking real money. As a new forex trader, avoid trading in thin markets, there is a reason there isn’t much interest in those so be conservative until you have gained enough experience to tread those type of waters. Taking advice from fellow traders and forex mentors is a great way to gain insight and experience, keep in mind though, that your trading account is only for you. Make your own observations about the market and study the trends independently prior to making your decisions.
All forex traders use some type of computer software, either for trend analysis or for the trading itself. Learn the bugs in the systems. There is no error free software, no matter how good it is; learning the problems in advance will allow you to deal with any situations that arrive during your trading day. There are a lot of products such as books and forex robots that are marketed as being able to give you results with minimal work. It’s best to ignore them altogether. You will end up spending money on something that at best is unproven and worst, very dangerous. There is no substitute to earning your own experience and refining your unique way of trading. If you must pay for training, its in your best interest to opt for person to person session with an active and highly experienced trader.
Remember that the market goes up and down, the key to successful trading is t anticipate when it will go up, and sell at the highest point possible. You can sell while the market is in a downward trend, but is becomes harder to find buyers. Forex robots should be avoided at all cost. The people who create the robots benefit the most, mainly from the sale of the robot itself, and the buyers either profit very little or not at all. Don’t fall into the trap of some former day traders. They use unethical means to collect profit such as trading against their clients, slipping closed orders, stop hunting and filling delay. Not only are these practices unethical, but are against the rules. No one can profit very long by using underhanded tactics.
Pay attention to current market trends, follow the advice of your mentors and work hard. In time you will have found that you trade easily and efficiently, all while making a handsome profit in the foreign exchange arena.