My roommate has inspired me to take a proactive approach to my financial future. He’s taught me a lot about investing, but recently, he’s been venturing into currencies (or forex) trading. I’m curious to learn more about forex. How do I get started?
Forex trading can be a lucrative way to diversify your investment portfolio. However, it’s also a really risky form of trading. With experience, you can see some serious returns, but you can also see some serious losses.
Nevertheless, forex is still an attractive option for traders. Getting started requires you to first find an online broker. It’s important to take your time with this step, and to find a broker that’s both reputable and well-established. Read through reviews, check out their terms of service, and make sure that you understand all of the fees involved.
Because forex trading is risky, you might consider setting up a trading demo account to try out different strategies and to learn the ropes. Once you feel confident in your abilities, then you might open a real account and start making real trades.
When you do start making real trades, make sure that you’re only using money that you can afford to lose. Never “bet” your whole life savings or use money that you need for living expenses.
While you’re learning the ropes and using a practice account, you may want to test out different strategies to see what works and what doesn’t work. Always start with a plan, and stick to that plan.
Here’s what your plan should include:
- Profit goals
- Risk tolerance level
- Evaluation criteria
Having a plan allows you to objectively determine whether or not to make a trade. It removes emotion from the equation so that you don’t make an irrational decision when it comes to trades.
Emotion is your enemy when making any kind of trade, particularly in forex. That’s why it’s so important to stick to your plan. If a trade doesn’t meet your criteria, back away. If things don’t go as planned, cut your losses and avoid making “revenge trades” that could leave your bank account empty.
You may want to start with one currency pair, and then expand as you improve your skills. Currency trading is complex and the market can be chaotic. Until you have more experience, it may be best to start with a currency pair that you’re familiar with, such as the currency of your nation.
Know your limits. How much are you comfortable risking on each trade? Set your leverage ratio to a level that meets your needs and risk tolerance level. Never risk more than you can afford to lose – even when using a practice account. Otherwise, you may start making a habit of making high-risk trades that can lead to real losses.
Slow and steady wins the race. Educating yourself and creating a plan is a great start, but it will require discipline and patience to stick to your plan.
Also, you’ll want to reevaluate your plan every so often or if things aren’t working out as planned. Your plans should always reflect your goals, and if your goals or your financial situation change, then your plan should also change.