Considering forex (the foreign exchange market for trading different currencies) is the biggest market in the world, it’s easy to be curious about it. It’s also easy to fall for some of the many misconceptions surrounding it. There’s a widespread belief that forex is just for short-term trades or “day trading.” While day traders can be successful with forex, that definitely isn’t all that’s going on.
Currencies can be, and often are, traded over the long term as well. To that end, forex trading isn’t a “get rich quick” scheme. It requires patience, experience, and a keen sense for spotting which trends will be successful. That said, whether you’re a curious passerby or a would-be serious trader, here are some naked forex tips to help you get started.
Analysis
Firstly, it’s important to understand the different approaches to analysis and how they relate to different types of trading. These processes are quite complex, and while you won’t be an expert on them immediately, it’s good to have a general understanding before you get started. Nothing beats first-hand knowledge, after all.
Fundamental analysis is a technique where traders look for indicators of whether a currency is over or undervalued, and then try to make predictions for its future value based on this data. This is a difficult process that often involves sifting through reports from nations’ central banks. And because central banks take so many actions so quickly, keeping up is a huge challenge. News reports from different countries can be good sources for predicting economic changes, and it’s also good to look for seasonal changes that can impact prices.
Technical analysis is a school of thought that maintains each currency essentially has a limited range it can fluctuate in and out of. Because of this, it’s possible to view the past behavior of a currency and compare it to recent behavior to predict its future behavior. This type of analysis is popular among many traders because it shows them objective data, which can make predictions more comfortable. It also maintains that currency trends are basically determined by basic marketing concepts like supply and demand, which can make this an attractive option for newcomers.
Generally, each type of trading will follow ideas from one of these thought processes, whether the goals are short, mid, or long-term.
Hire a broker
It’s hard to overstate the value of hiring a broker when you’re first trying to get a handle on forex trading. That’s just because you likely won’t know how to make accurate predictions when you first start getting your feet wet. It’s helpful to have expert advice at your disposal. Considering that brokers can charge different types of fees (like a commission versus a spread markup) in the forex market, it’s a challenge to find the one who’s right for you. Try to find one who will offer you educational material and constant customer support. That way, you’ll learn more quickly and be prepared to handle your own trades sooner.
Expect some losses
It’s not an easy pill to swallow, but it’s important to accept that you’ll have losses, especially in the beginning. The best advice is to just keep your emotions in check, and try not to react based on them. Knowledge is important in forex trading, but if it was the only component, there would be many more success stories. Realistically, you’re going to experience some losses similar to your gains each year. For example, if your goal is to make a 70 percent profit in the end, it’s not unlikely you’ll suffer close to a 70 percent loss at some point. Start with a small account and experiment to see if it’s for you. In time, you may find yourself becoming a self-sufficient trader.