A Guide to getting started with forex trading
If you are new in forex trading and want to start trading like a pro, you need to be patient and learn to access the currency markets the right way. It is important to know how to avoid mistakes that may make you face huge losses as well. These are the steps you need to follow while getting started with forex –
Choosing a forex broker
There are numerous forex brokers to choose from. These are the factors you need to look for while choosing your broker –
- Lower spreads: Spread is the difference between the price for a currency to be purchased and sold. It is calculated in pips. Forex brokers do not charge commissions. So, they make money from spreads. When you compare brokers, you will notice that the difference in spreads in forex is similar to the difference in commissions in the stock arena.
- Regulated broker: Your broker must be regulated under authoritative financial bodies like the FCM or CFTC. Not only you can find financial information and statistics about a regulated broker easier, but it also provides more security for your money.
- Research and extensive tools: You need to check if your broker is offering different trading platforms for its clients. These trading platforms offer technical analysis tools, real-time charts, real-time news, and more. Also, a good broker provides technical and fundamental information, as well as economic calendars, and other research.
- Leverage: Leverage is essential in forex as the price deviations are only fractions of a cent. It is expressed as a ratio of total capital available to actual capital. It is the amount of money that a broker lends its clients for trading. So, a ratio of 100:1 means that for every $1 of actual capital, it will end you $100.
- Account types: It is better to choose a broker with different account types to fulfill various requirements of traders. You need to choose an account with a lower minimum investment if you are a beginner. Also, a demo account is very essential. You must practice trading on a demo account before going for a live account.
Defining a forex trading strategy
Fundamental analysis and technical analysis are two of the most used strategies in the forex market.
- Fundamental analysis: Fundamental analysis is very complicated and it is used to predict long-term trends mostly, but some traders trade short-term too on news releases strictly. There are various fundamental indicators of currency values such as Non-farm Payrolls, Purchasing Managers Index (PMI), Consumer Price Index (CPI), Retail Sales, and Durable Goods.
- Technical analysis: Technical analysis in the forex market is similar to the one in the equity markets. The only difference between the counterparts is the timeframe because the forex market is open for 24 hours per day. So, some forms of technical analysis that factor in time has to be modified to factor in the 24-hour forex market. Some of the most common forms used in forex are The Elliott Waves, Fibonacci Studies, Parabolic SAR, and Pivot Points.
Choosing your forex trading strategy
Most of the successful traders develop their own strategy and perfect it over time. Some concentrate one certain study of calculation, while others go for broad-spectrum analysis for determining the trades. According to experts, using a combination of both technical and fundamental analysis is a great way to make long-term projections, as well as determine entry and exit points. However, you have to come up with what will work best for you.
Conditions of forex trading that you must remember
- First, you must open a demo account and continue paper trading until you make consistent profits. Many traders lose a lot of money after jumping into the forex market because they take on too much leverage. It is essential to take time and learn trading well before committing capital.
- You also have to trade without emotion. Do not keep mental stop-loss points if you do not have the skill and ability to execute them on time. It is best to set the stop-loss and take-profit points to be executed automatically. Also, refrain from changing them unless it is absolutely necessary.
- Remember that trend is your friend. If you decide to go against the trend, do it only for a very good reason. The chance of success in trading is always higher.
Every day, more individuals are coming into the forex market from around the world but not all of them become successful. Following this forex trading step by step guide will help you become one of the successful traders.
