Forex Trading 101
Forex trading, or foreign exchange trading, is the process of buying and selling different world currencies. The foreign exchange market determines the rate of exchange, but this rate continually fluctuates on a day-to-day basis, according to world events and other economic factors. Whilst the process appears straightforward, it can result in massive losses if one does not know what they are doing. Some forex trading platforms offer demo accounts, where beginners can practice forex trading without risking any personal assets. For those with skill, however, forex trading can be a great way to net a tidy profit.
Common Beginner Mistakes
• Emotions over Logic: Some people can become emotional traders, where logic and rationality are relegated to the sidelines. Becoming overly invested in one’s trades can lead to disastrous results. It is important to remain detached and be able to take a step back when making financial decisions. Perspective is vital.
• Not Knowing When to Stop: This is a common error that occurs in many situations involving a combination of skill and chance. Traders either refrain from taking their profit in the hopes that it will grow even bigger, or they continue to make desperate trades in the hopes of making up what they have lost. The key is to keep your expectations realistic. When your profits reach 2 to 3 times the risk, it is best to take them then, before the market reverses again and you lose everything.
• Patience is a Virtue: Forex trading is a practice requiring skill that builds up over time. It is not a quick-fix solution to your financial problems. Do not trade with money that you cannot afford to lose! Refrain from making rushed decisions, and take your time to carefully consider your moves. Spend a sufficient amount of time practicing with a demo account before you venture into the real world.
• Think Like a Trader, Not a Gambler: The subtitle really says it all. Forex trading is not equivalent to mindlessly pushing buttons at a slot machine. Experts suggest thinking of the process as risk management, and not money-making.
• Needlessly Complicating Matters: Don’t get wrapped up in fancy applications and forex indicators. Stick to the basics - this essentially means that you just need to learn to read the price charts and interpret them.
• Have a Plan: Don’t just wander into the world of forex trading without a game plan. If you really want to be successful, you need to have an outline of your trades, available cash and other pertinent information.
So there you have it. If you have the patience to learn and a small sum of cash to set aside, forex trading could pay off for you in the long run. Just another method of boosting your income!
Grace Matthews is a London-based lifestyle blogger who would advise you take advantage of the services of a forex broker when playing the markets.