When it comes to the world of finance, the forex market is considered to be one of the largest and most liquid markets with estimated daily forex transactions valued at $5,3 trillion. The one thing that distinguishes trading forex and trading stock is that you trade forex in pairs and when trading shares you buy and sell the same stock. Forex on the other hand allows you to sell one currency and buy a different one in return. To trade forex though, some capital is required to begin with, but just investing with no plan of action won’t guarantee potential lucrative returns. A definite upside is that you can start with a relatively small amount of capital which is important for trading beginners who can later test strategies and learn about the market without large expenditures. But where should you begin and what to do first? EuropeFX Academy lists 10 necessary steps to forex trading.
In order to progress, traders-to-be need experienced guidance, but first and foremost time and dedication in order to acquire the needed education. Before giving up, you should consider looking into trading education and preparing yourself for a big leap into the world of finance.
In this article EuropeFX offers a list of steps to follow for the sake of a potentially successful career in online trading.
- Commitment to learning about forex
If you’re new to forex, there are a lot of basics to cover and later expand by upgrading the foundation of that knowledge. Many terms and phrases must be understood in order to get to the bottom of the market fully. Many beginners make the mistake of thinking that forex is like gambling, when in reality, forex is more of a game of probability. Before making trades you need to comprehend the chances of making or losing capital. An important thing to note is that you’ll never fully complete this step, given that the learning process happens continuously as the market changes. Learning about the market should be implemented into your trading routine and you should consider making it a daily habit.
2. Choose an adequate broker
A literal number of a million forex brokers makes it hard to choose from and you should consider what each of them offers. If the first step was completed properly, choosing the right forex broker should be a piece of cake, since you’ll be able to distinguish the offers from different brokers. The ideal scenario would be to pick a well known broker, one that has good reviews and numerous people trust. It’s advised to avoid lesser known brokers, since it can be hard to determine if they’re scams or not. The quality of the service also plays a huge role, but the most important thing is to check if the broker is regulated. To regulate the broker of your choosing, it is also preferable to choose someone from the same country you reside in.
3. Register and set up an account
As with brokers, there’s also a range of different accounts to choose from, and at first it might be difficult to find the right fit since you still haven’t established your trading style. The advice here should be to open an account that doesn’t require a larger capital, since it allows you to trade in smaller numbers. At this point, you don’t need to worry about a wide range of forex pairs nor leverage – professionals should cover those for now. EuropeFX advises you not to set up a demo account, because this creates false market expectations. Having amounts of fake money in these accounts also removes the element of risk – something that’s always present in the forex trading world.
4. Find a trading platform
A large number of forex traders use MetaTrader 4, also known as MT4, as it dominated the market in the last 20 years. This platform provides a lot of documentation, which can help you understand the market, check forums and also ask other people for help. A thing to double check is the compatibility of your broker to this platform, as it’s rare for a good broker not to work with this platform. A good deal of time should be spent on learning how the chosen forex trading platform works, since you won’t be able to trade without a platform.
5. Create a risk management strategy
Before you begin trading, devising a risk management strategy is of utmost importance. Now that you have a broker and a platform, you can start trading, but keep in mind that you should take a little more time to prepare yourself. Implementing a set of rules that comprise risk management strategy should help you minimize the losses connected to trading. The most common risk management strategy is to trade 1% of what’s in your trading account per one trade. The account will in turn last longer and you’ll also be able to learn more from each trade.
6. Analyze the market
Experience is the core of all successful trading and acquiring it should be one of the main guidelines of your forex journey. Once you get the needed knowledge you’ll be able to recognize what opportunities are worth it and which ones are not. There are many ways you can analyse the forex trade market, but most of them can be categorized as technical or fundamental. Technical analysis is a broader topic and includes market tools also known as indicators and fundamental analysis is based on current news and events. Aforementioned indicators can measure a number of things accurately like GDP, inflation, unemployment etc. To really understand forex trading, you need to acquire knowledge in both analysis types.
7. Start trading
Now that you covered the basics, it’s time to do a little bit of trading and as with any applied skill, you can’t really know it until you actually start doing it. This is where you’ll notice how you react to the market mentally as well, since you won’t start winning right away. In fact, it’s more likely that you’ll have a lot of losses in the beginning, which is completely normal and shouldn’t upset you. All mistakes are there for us to learn from, and this way, every mistake you make gets you one step closer to an immense pay off. If the opposite should happen and you keep making money, you should keep in mind that you’re not invincible and are still fairly new to the forex trade market.
8. Learn trading styles
Now that you have started trading, you can refine your skills and find what works for you. This is one of those steps that takes a long time to conquer, as it is like the first step, an never-ending process. As you trade, you gain experience, master your skills and adapt to any current situation that the market creates. When we’re talking about trading styles, it usually comes down to a question: are you a day or swing trader? Daily trading is considered a full time job and these traders typically open positions in the morning and close them at the end of the day. Swing trading requires less time investing, but it’s more long-term. Trades are sometimes closed days or even months after opening. Some experts believe that swing trading is the key to “real money” while some disagree and support day trading. Nevertheless, as you gain experience you will be able to decide what type suits your needs and preferences.
9. Keep a journal about trading
Keeping notes is a well known method of learning faster and implementing the accumulated knowledge in a more efficient way. A trading journal is for logging trades, noting all the details, like, why you entered a position and what was the outcome. Noting all of this information will help you learn and prevent repetition of old mistakes. If you decide not to keep a journal that might harm your trading and you might not progress as fast as you’d like. Also, some mistakes become more obvious once you put them on paper and analyze the given data.
10. Continue learning about forex trading
As we already mentioned in this education guide, learning about forex trading should never stop. Even hardcore proffesional traders follow the market religiously and keep thorough journals, which is one of the few reasons why they succeed in the financial market. If your knowledge is up to date and sharp, you can easily assess and recognize profit opportunities and take them. Learning forex trading isn’t always about learning new things, but rather repeating the things you already know, so you don’t make the same mistakes.
Finally, after going through this guide from EuropeFX academy, you are safe to assume that you’ve covered all the needed information in order to start trading correctly. When implementing, try to be thorough, consistent and determined and you’ll have no problems once you decide you’re ready to enter the market. Setbacks might occur, but patience and persistence is the key to successful forex trading, so stay sharp, keep yourself informed and don’t be afraid to go back to these basics from time to time.