The foreign exchange market (FOREX or FX for short) is one of the most exciting, fast-paced markets around. But trading this market as a novice is also risky. You would not be the first one to lose your shirt and your savings.
We like to compare FOREX trading with driving a car. We’ll come back on that.
Get Proper Training
FOREX or currency training is not rocket science. But it is also not something that you can “just do”. You will need training to understand what is going on and especially to understand the risks. Trading without being trained is like started to drive a car without ever getting any lessons. You still might be able to drive a few metres but you also increase the risk to get killed.
Before you start with FOREX trading, you need to know which FOREX trading system you will use and how to master it. The only way to do this is to get training. Chose a system that you are comfortable with, follow it, and evaluate the results.
Manage Your Money
A lot of FOREX traders fail in making money because they lose all the money they had earmarked for FOREX trading and they stop. They trade by following their gut or they make too large bets. You may win initially. But after a few sequential losing trades, your pocket could be empty… when you do not manage your money and trade sizes properly.
Lack of patience and the urge to act are the downfall for many FOREX traders. You show patience by:
- Getting training and having selected a trading system before starting to trade.
Before you step in a car, you know if you have to drive on the right side of the road or on the left side. And you know how to drive, what to expect and how to react. Same shall be valid for FOREX trading. Take the time to get trained.
- Making extensive use of the possibility to do demo trading.
Once you are trained, do not start trading with real money immediately or do not demo trade for just a week and then blow your money in another week. In the bigger scheme of things, it does not matter if you only start trading with real money in a few months.
For your bigger scheme of things it does matter if you make money with trading or lose all your savings.
It is probably just a matter of time before we have formal car-simulators, but very few pilots step in the cockpit without extensive training on a flight-simulator.
- Avoiding Over-Trading.
Tomorrow there is another day. Making too many trades during a day or week only makes your face green and your bank account red. Driving your car for too many hours in a row also makes you more prone to a killing accident.
Be Aware of the Leverage
Daily currency fluctuations are usually very small. This makes foreign exchange one of the least volatile financial markets around. Therefore, many currency speculators rely on the availability of enormous leverage to increase the value of potential movements. In the retail FOREX market, leverage can be as much as 250:1.
Just be aware of the leverage when FOREX trading. It can balloon your profits but also amplify your losses.
And you do not want to have to sell your car. Then you can’t trade nor drive anymore.
If you have not signed up for our Free FOREX Newsletter to be automatically updated with FOREX Analysis, Trends, Explanations and Information, Sign Up now. Or check here first what your FREE FOREX eBook gifts will be when you sign up.
See here a series of FOREX related articles.