The world of trading has opened up to almost anyone who wants to try their hand at it over the last few years thanks to the internet. Foreign exchange (or forex) trading is no different, with many wannabe traders turning to foreign currencies in order to make trades and hopefully find success in the markets. If you’re thinking of joining their ranks and committing yourself to forex trading, here are a few things you need to know.
What is forex trading?
Forex trading, in layman’s terms, is the practice of converting one currency into another in order to make money as one of the currencies increases or decreases in value. It’s not that different from changing your money when you go abroad, however instead of doing it for an immediate practical reason, you’re doing it with the intention of making a profit. The average daily trading volume in forex is around £5 trillion, so a lot of people trade a lot of money in this market. One of the reasons it appeals to so many people is that forex trading is heavily impacted by the volatility of certain currencies, meaning it can be closely tied to global news events.
What do I need to know before starting out?
The world of forex trading is something that can never be predicted with complete accuracy, and anyone starting out should be aware of this. While experience will help you bring together your trading strategy, you need to prepare yourself for the inevitable loses you are going to incur and, crucially, learn from them.
One thing you can do to help start your forex career properly is to learn about forex trading patterns. These are patterns that regularly appear in trading charts, meaning that if an experienced forex trader spots one developing early, then can make a good trade by predicting which way the currencies are going to move. Several online tools can teach you about these charts, such as the DailyFX forex trading patterns piece, which also gives you information on what factors lead to these patterns.
Are there any risks?
As with any sort of trading, there are risks involved. To minimize this for anyone at the beginning of their forex career we’d suggest starting out with small trades, only moving on to larger sums when you have become more confident in your trades. An old adage that fits any type of trading should also be adhered to – ‘Don’t risk any sum of money that you’re not willing to lose’.
If you’re just starting out in forex trading you should also initially focus on currency pairings you are familiar with or know a lot about. Currency values are impacted by global and national issues, meaning that you need to be a regular consumer of the news for the country whose currency you’re trading in. Most British people read about news events which impact the British pound and the Euro, so this might be a good currency pairing to start off on. Of course, if you have a fascination with Japan or regularly follow the national news of South Africa, then you might find success in trading within the Japanese Yen or the South African rand.
What can I get from forex trading?
Trading, while risky, can bring big financial rewards to people who find success within it. This applies to forex trading as well. As we said, it’s important to be aware of the risks, however it is very possible to make money through forex trading.
Beyond that, forex trading appeals to lots of people as it doesn’t necessarily require your constant attention or hours of input every day. Certain forex trading styles fit people who look to make many small, quick wins, and therefore need to invest a lot of time into trading. Other styles concentrate on long-term wins, and therefore only require the trader to check their trades once a day, sometimes even less frequently than that. That’s why forex trading often appeals to people who have full time jobs or are busy with parenting duties. You can turn forex trading into your main income, or simply keep it as a ‘side hustle’ to make a bit of extra spending money – the choice is yours and it’s entirely possible to find success in forex trading no matter which style of trading you choose to adopt.