In days gone by, it was rumoured that the streets of London were paved with gold. Rumour and reality are of course two very different things. Trading on the Forex market is relatively easy to get into but that doesn’t mean that there are no pitfalls – quite the contrary. In fact a more honest headline for this article might be “How do you avoid losing money trading Forex”.
The first lesson is that any trader needs to fully understand exactly how the market works. It’s true that nothing whatsoever beats experience and live trading but that doesn’t mean that a great deal of advance preparation won’t pay rich dividends. Understand the pressures on different currencies in a market that is subject to constant change. Get up to date with geo-political forces affecting those currencies with which you are trading. Be savvy to market conditions, regulations and the potential impact of world events. And before you start trading, use your accumulated research to work out a trading plan.
Should you then be all raring to go? First there’s the question of finding a reputable broker to work with and the easiest thing is to check with the regulatory authority in the country where you are trading who will provide you with a list of registered and approved brokers. Next up you should acquire for yourself a practice (or demo) account which will simulate real trading without you having to commit funds yourself. The most important use of one of these accounts is that it allows you to become skilled at the techniques you will need when you go live. Just imagine the dangers if you start out for real and all buoyed up with enthusiasm and expectation, you press the wrong button and end up adding to a losing position when you could have been effecting a successful trade. Whether you are a budding violinist or out to make a killing on the markets, there is no substitute for practice – and plenty of it.
You need to learn how to protect your money. As we implied at the start of this article, the way you make money in Forex is by not losing money in Forex = or at least keeping those losses as low as possible. You need to know when to cut your losses and likewise when to protect your profits. When you do go live as a trader, start small and guard against the danger of becoming too enthusiastic.
Above all, treat trading as a business and look to make sensible profits in the long run.