The forex marketplace gives investors the chance to trade currencies and hopefully make money from an increase in the exchange rates. Unlike the stock market, the forex marketplace is active 24 hours per day. This can be both a positive and negative thing, depending on your level of experience. You can find a range of highly-regarded forex brokers for trading currency at fxdailyreport and looking at their top 20 list of brokers.
Newbies make the most forex trading mistakes. They don’t bother educating themselves on the best ways to trade forex. In their minds, forex is a way to get rich quick because they’ve seen videos of other people claiming to get rich by trading currency. In reality, forex trades do not guarantee immediate profits. Sometimes you may never see any substantial profits.
For this reason, it is imperative that you know what you’re doing before you place a trade. Below are the top five tips to help forex trading newbies avoid making bad decisions with their investments.
1) Start with a Demo Account
If you have never traded on the forex marketplace before, then don’t start with a real account. Open a demo account which lets you trade virtual currency instead of real currency. This is an essential thing for newbies to do because it gives them a chance to test out their trading skills without risking any real money.
Most forex brokers allow people to open demo accounts with them for free. Once the account is created, you’ll start with a virtual balance of $100,000 or some other high amount. Then you can use this money to trade virtual currency, which is based on the real currency exchange rates. Of course, you can’t gain or lose real money from your trades here. It is meant to teach you how it all works and gives you a chance to perfect your trading strategy.
2) Set a Trading Limit for Yourself
When you’re trading with real money, you need to set a trading limit for yourself. Forex trading can be very emotional, and it is easy to feel the compulsion to invest more money as the exchange rates change quickly. If you’re not careful, you could end up trading more money than you can afford to lose. That is why you must set a maximum limit for your trades. If you cannot afford to lose the money, then don’t trade with it.
3) Develop a Trading Strategy
To be a successful forex trader, you must develop a strategy that works. So many newbies jump into forex trading without any strategy for making money. They’ll just buy any currency and wait for the exchange rate to give them a profitable return. But there is no guarantee that a profitable return will come.
You must develop a trading strategy where you focus on trading certain currencies at specific times. That way, you’re not making impulsive trades based on emotions and feelings. Every trade you make must be based on a set strategy that you’ve created beforehand.
4) Have Patience
Patience is the way to be a successful forex trader. Unfortunately, newbies tend to be rather impatient. They have a tendency to stare at their computer monitors constantly while watching the currency exchange rates change every second. This is a recipe for disaster because it makes them feel anxious and emotional every second of the day.
If the exchange rates decrease, and a newbie starts to lose value in their currency, they might panic and sell quickly in order to avoid a bigger loss. But this is not a good idea because currency rates can bounce up just as quickly as they bounce down. If you learn to have patience, then your loss could quickly reverse itself back into a gain. That is how volatile the forex marketplace is.
5) Limit Losses
Newbies are always focused on their potential profits rather than their potential losses. You should always be focused on avoiding losses without worrying so much about the profits.
Although it is good to have patience and not get tempted to sell when there is a loss, you should set a limit for how much you can afford to lose. If it looks like a currency trade is going really bad, then you might want to sell if you’re losing more than 20 per cent of what you put in. Then you can reinvest that money in another currency that has the potential to increase.