Foreign exchange (forex) trading is considered by many to be the premier venue for traders– and for good reason. The global forex market is by far the largest financial market in the world as more than $6 trillion worth of currencies trade hands each day.
The forex market runs 24/7 so there is always action to be found. By contrast, stock traders have a limited window, and traders in Asia may be turned off by the prospect of trading the New York Stock Exchange throughout the night.
If forex trading is right for you, here are four tips for new forex traders looking to make a living.
Tip 1. Platform Matters More Than You Think
At first glance, all trading platforms perform the same function of routing and fulfilling your order. But picking the right broker to handle your trading journey is more difficult than many assume.
This is especially true for new traders with limited capital to invest. Some platforms cater to professional and wealthy clients while a handful of others accept new clients with a very low initial deposit while still offering a generous margin allocation. As an example, the FBS broker has a 10 euro minimum deposit to open a new account and offers leverage of up to 30 times.
New traders should also take their time to sample multiple brokers through a free demo platform to ensure it has all the required functions and features that suit an individual trading strategy.
Tip 2. Know Your Strategy
Traders that jump straight into the forex market without working on a strategy will likely lose their entire deposit. This logic holds true for an expert stock trader that thinks they can conquer the forex market and a new trader that didn’t understand what a pip is just a month ago.
Forex traders can trade off news, technicals, charts, or other factors. They can wait patiently for hours or even days before entering a trade with expectations of a large profit. Or they can enter and exit dozens of trades daily while collecting a small profit on each transaction.
Traders who feel they would get bored sitting and waiting should create a more exciting approach that keeps them busy throughout the day. On the other hand, someone that can’t handle the pressure of following dozens of charts across five computer screens should adapt their strategy to minimize a lot of the noise.
Perhaps more important than developing a strategy is sticking to it and knowing when a change is needed. If it needs to be altered, take the time to think it over and practice the new strategy on a paper account. If it is not working at all, it is time to throw the strategy in the trash and leave it there and start over from scratch the next day.
Also important to incorporate in a strategy is any profit objectives. The forex market is void of monster returns that have become common in 2020, such as online retailer Overstock that gained more than 1,000% in 2020. If you are hunting for triple-digit percentage gains then the forex market just isn’t for you.
Forex trading for beginners is unlikely to make anyone rich. But rich is subjective and varies from region to region. Traders in Western countries like the USA, UK, Germany, or Japan will find it impossible to sustain themselves with a monthly profit of €1,000. But traders in other regions of the world can live a more comfortable life with this level of profit.
Tip 3: Be Smart
The world’s smartest traders know that there will be many trades that go against their favor. What separates the elite traders from poor traders is the smart traders understand the importance of cutting losses early.
Many traders will likely learn this lesson the hard way: A bad but manageable trade can transform into a disaster trade within seconds. Those few seconds can be the difference between ending the day with a respectable profit or ending with a loss.
Using stop losses immediately after entering a trade is a great way to stay disciplined. A stop-loss is an order to sell a currency at a predetermined price to avoid too large of a loss.
For many new traders, this is where the poker terminology of “tilt” kicks in. After a tough loss, new traders completely lose any focus they had left and try to recapture losses recklessly.
The best way to avoid going on to “tilt” in forex trading is to never let it happen in the first place. If it does happen, and it is ok if it does, it is important to stop what you are doing and take a break to cool down.
Tip 4. Be Ready To Adapt
The global COVID-19 pandemic has wreaked havoc across every financial market. This may have been more apparent in the oil market when the commodity dipped into negative territory for the first time ever.
But the forex market also experienced its ups and downs in 2020. Traders that refused to adapt to the new reality were more likely to experience losses than those that embraced the latest developments.
When UK Prime Minister Borish Johnson was admitted to intensive care after contracting COVID-19, the British pound, as expected, fell in value. Technical traders that only pay attention to the charts and nothing else may have mistaken the initial move lower in the currency with a buying opportunity.
So, technical traders need to pay more attention to the news and perhaps fundamental traders need to also pay a little more attention to the charts before evaluating a trade.
This isn’t to say that a strategy should be disregarded. Rather, it needs to be updated to better reflect the new environment.
Bottom Line: You Are In Control
New traders are ultimately in control of their own destiny. They control all the shots from deciding when to enter a trade, when to lock in a profit, and when to cut losses. There isn’t anyone else to blame mistakes on besides yourself.
Knowing your strengths and weaknesses and formulating a trading strategy and lifestyle across these factors will increase the odds of success. Doing the opposite will naturally increase the odds of failure.