Forex markets are the most traded markets in the world, and for good reasons. Forex trading offers several advantages, not available with other trades. It offers both high liquidity and high leverage, allowing optimal use of available capital. Unlike most other marketers, forex markets operate on a 24-hour basis, across the globe. Moreover, forex trades are over-the-counter, rather than through any centralised exchange, offering investors the ability to respond to any situation, and make trades, in real-time.
The financial figures, charts, and ratios notwithstanding, all markets are dependent on external factors outside anyone’s control, and forex markets are more so, considering events anywhere in the world can have a bearing on forex movements in a big way. However, it is still possible to succeed in forex trading by adopting a methodological approach, adopting patience, restraint, and discipline. Investors who apply common-sense and adopt basic precautions can expect rich rewards from forex markets.
Have a Clear Trading Strategy
Have a specific goal in mind, and select a trading style or strategy suitable for such goals. The key consideration with regards to trading strategy is the risk appetite. Different risk profile requires different approaches. For instance, long term forex trades tends to be relatively more stable and carry lesser risks, but would also mean relatively low returns, and lock up funds for a long period of time.
Understand What Influences the Forex Markets
The basic preparation before starting any trade is understanding the nature of the trade, and the variables influencing the movement of prices.
Foreign exchange trading entails taking advantage of rate fluctuations between currency pairs. There is an almost infinite number of currency pairs to trade, with the most popular pairs being USD/GBP, USD/Euro, and others. Emerging market currencies may be more volatile, and hence offer a higher risk-reward conundrum.
Currency rates are never static. It keeps on moving, depending on political, social, and economic developments related to the country, and also across the globe. Success depends on knowing when to enter and when to exit the trade. While this may seem a gamble, understanding the underlying trends enables making informed decisions. While prices may move irrationally in the short term, owing to speculative activities, fundamentals always drive the price trend in the long run.
Be Alert and Proactive
While it is foolhardy to time the market, a serious trader should always be on the lookout to seize the moment, when there is scope to make rich gains. For instance, an unexpected political shock may send the currency price reeling on panic selling, making it a good time to pick up the currency at a discounted rate, before the currency regains much of its lost value, after the panic subsides, and fundamentals regain ground.
Again, while past performance is no indicator of future trends, analysing historic trends does offer rich insights, and can constitute a basis for predicting the price levels, if everything else remains the same.
The underlying secret of success is flexibility. Never remain adamant on any trading position, and always be ready to adapt trading strategies to suit changes in market condition.
Risks are inherent to any trade, and forex trade is no different. The best way to safeguard against unexpected price trends is to set limits as to the maximum risk. For instance, setting a stop-loss when the loss exceeds a certain threshold helps to limit the loss, and protect the capital. A serious investor will not shy away from a loss, which is as certain as the night following the day, considering price movement depend on many variables that are totally unpredictable, and outside anyone’s control. Success depends on ensuring the gains far exceed the losses.
Opt for a Good Broker
Opt for a reputed broker who offers an appropriate trading platform, suitable to the trading strategy and risk appetite, and also assist in the trade. Brokers such as CMC Markets offer a wide range of products, extending to various forex calls, and suiting various risk appetites. Such brokers also offer insightful analysis, done by experts who have a wealth of experience and access to real-time trends. Opting for a broker who offers an online trading platform makes executing trades very easy and convenient