Did you know the foreign exchange market, commonly referred to as ‘forex’, has a daily turnover in excess of US$5 trillion? In fact, the global forex market is the biggest in the world.
And did you know that you can enter that market as a beginner and, with patience and practice, make money from it? Here are some tips to give you an overview of what you need to know and develop as a mindset.
In its simplest terms the Forex (FX) involves the exchanging of one currency for another at an agreed price, 24 hours a day.
How to Trade Forex
The first thing to know is that currencies are quoted in pairs, with the value of the first currency in the pair traded against the value of the second currency in the pair.
As a trader it’s for you to speculate on whether the first currency in a currency pair, such as GBP/USD, will rise (appreciate) or fall (depreciate) against the second currency in that pair.
Using the GBP/USD as an example, if you believe the pound will depreciate against the US dollar – you go ‘short’ and sell. If you’ve called it right, you will profit with every pip (the smallest price change that a given exchange can make), the British pound depreciates against the US dollar.
On the other hand, if you believe that the pound will appreciate against the US dollar, you go ‘long’ and buy. And if the pound keeps going up in value relative to the US dollar, you will profit with every pip of appreciation.
Manage your Risk
One very important thing to be aware of is that Forex trading can be volatile, even to the extent that a price drop going against you can mean that you lose more than your initial deposit. So just be sure you exit before your losses become too uncomfortable. Always remember, you are a trader, not a gambler.
Start with simple, tried and tested strategies
The best way to learn to trade is to familiarise yourself with tried and test strategies and use those to learn how to read the market. The more disciplined you are, the better your chances of learning to master easy takings and avoid heavy losses.
And one of the best ways you can acquire those strategies to get some hands-on tuition from a professional trader in a real trading situation. This will massively raise your learning curve in a relatively short space of time and give you a much better chance of developing the right habits and mindset early on, and success longer term.