Forex is the new hot thing in the trading world, attracting tons of new and older traders. However, like any other asset class, Forex has particularities that make the trading skillset you need unique. Many rush in with a general trading mindset and drop Forex after not finding success after a while. Because of that, a subset of traders seems to have developed the opinion that Forex trading is overblown and little more than a scam. And while there has definitely been a rise in dishonest online brokerages, there’s nothing wrong with Forex as a trading method.
On the other hand, it’s not the moneymaking scheme others think it is. Handling Forex trading requires a great deal of skill and knowledge if you’re chasing steady profits. Naturally, you can also go in and improvise, and that might find you some success, but if you keep at it, you’re flirting with failure. But the problem is that there’s a lot of conflicting info surrounding Forex trading online.
To help ease Forex trading newbies into the process, we’ve prepared some things all newcomers should know.
Leverage is a Double-Edged Sword
While the option to leverage your trades can strengthen your positions and aid your earnings, it’s not universally useful. In actuality, leverage does nothing to impact the results of your trades one way or the other. The chances to win or lose are constant, and the amount of money that goes either way stays proportionate. As such, all leverage does is make your trades more explosive.
The explosiveness isn’t inherently good or bad, and each trader should determine what’s best for them according to their abilities and budget. If your finances are tight, however, fiddling with high-leverage trades probably isn’t the best idea. The chance for high winnings is undoubtedly alluring, but the possibility of devastating losses is something you should always keep in the back of your head. Similarly, traders that aren’t yet entirely familiar or comfortable with Forex should initially stick to more conservative leverages.
The Best Time to Trade
If you’ve started educating yourself on Forex, you’ve probably encountered tips on when to trade. Certain traders believe that you should commit to more volatile times, while others think you should wait for things to calm down. And as with leverage, there isn’t one correct answer to when you should and shouldn’t trade.
The reason so many traders disagree isn’t that most are wrong; it’s because most are correct. But how can two contradictory arguments both be valid? Well, that’s because trading is, contrary to popular belief, a largely individual process. While specific economic knowledge does apply, what’s best for an individual depends mainly on themself.
For example, news traders aren’t dependant on the time of day but rather trade around news cycles. They primarily focus on US-related information, as the US dollar participates in around 90% of Forex trades. Breakout traders, on the other hand, should aim for more volatile market times, such as the London opening and London/New York overlap.
The key to determining the time you should trade is exploring your skillset and identifying your strengths and weaknesses. That requires trying things out, as you never know if a financial strategy will suit you until you try it. So if you’re new, trading at different times and seeing what feels right is likely to do you more good than blindly following a guide.
Patience is Key
Among all the skills needed to be a successful Forex trader, patience is the most important one. It applies to each level of trading, from learning to executing the trades.
Initially, you need to be patient in learning the core concepts and building a strong skill foundation. You can’t cut corners as a lack of knowledge will come back to bite you eventually. Even past that, you should take time to explore your strengths and weaknesses as a trader. Developing a rigid trading strategy without knowing what feels right to you is a recipe for disaster.
On the more advanced levels, you need to choose your battles carefully, and once you decide what to trade, you need to remain calm. You can’t go rushing into trades blindly, and once you commit, you can’t panic and jump ship as soon as things go slightly wrong