Guest Article: What to Expect from Forex Trading

By: T.H.

If you’re thinking about trading currencies as a way to diversify your portfolio or as a means to supplement your income, you probably know all about the risk and reward potential. What you probably won’t know until you get started, is exactly how the industry works. Success in the world of currency trading, also known as foreign exchange or Forex trading, actually begins long before the first trade is placed.

In order to ensure a positive trading experience, traders must first choose the right Forex broker, from literally hundreds of brokers worldwide. Making the choice from such a large menu can be difficult, but there are ways to make it easier. Forex broker reviews, for example, can help traders get an understanding of what their options are. Bear in mind, however, that that won’t necessarily provide the truest picture as in some instances there may be some bias toward those brokers which remunerate the website for their “honest” assessment. How other traders rate their experiences with a specific broker is an alternative way to assess a Forex broker. But again, this may not provide the truest picture as you cannot know whether the trader is just expressing “sour grapes” for what would otherwise be construed as risky trade activity – in other words, the trader may have lost all his money because he didn’t know what he was doing in the first place. Therefore, diligent traders should make sure to read both types of evaluations, and to weigh their reliability carefully.

Once a trader has narrowed down his options, he can take them for a test drive by using each broker’s free demo account. Once you’ve got your demo set up you can start making trades, fine-tuning your strategy and seeing how it works with each broker.

The demo period is also a great time to assess the responsiveness of the Forex broker, so make sure to ask questions – lots and lots of questions about anything you are unsure of or want to know more about. What you want to gauge is not only how quickly your question was responded to, but also how thoroughly and comprehensively the response was. Was the response timely and did it satisfy you? When there’s real money at stake you don’t want to be left in limbo by some bimbo; if you need an answer, you need one that satisfies your needs appropriately.

The brokers’ fees are also things that you will need to take into consideration; most brokers build their fees into their spread, which is the difference in pips between the bid and ask price. Spread fees vary from broker to broker, and may seem insignificant at first blush but can add up over the long run; ideally, the smaller the spread the better for you. Your potential Forex broker might have other fees that you should be aware of so look for the Fee schedule on their website and ask your broker’s representative about anything that doesn’t sound right or simply for more information.

Once you’re comfortable with using the platform, and are okay with the spreads and fees and the responsiveness of the Forex broker’s team, now’s the time to consider funding your real account. But before you do that, it’s critical to understand that you should never risk any money that you cannot afford to lose. It’s a simple fact: Forex trading is risky and no Forex broker can guarantee that you will always win. In fact, the majority of Forex traders don’t profit as much as they’d like.

For this reason, Forex trading isn’t for everyone. If you can’t afford to lose some money, you should consider alternate investment opportunities. If you have a tendency to be hasty, you may want to consider strongly whether the volatile Forex market will play to your strengths or whether haste will cause you to lose your money too quickly.

It is absolutely critical to understand that currency trading isn’t about getting one good trade. It’s about maximizing profits and minimizing risks over the long run. How do you achieve all that? By paying attention to these “rules” of Forex trade:

  • Start small; 1% or 2% of your capital is generally a good amount to bet
  • Don’t be greedy; if you’re in the green, lock in or take your profit
  • Don’t get cocky; overconfidence is the quickest path to failure
  • Don’t be impatient; patience is not only a virtue it’s a necessity in Forex trading
  • Diversify your portfolio but don’t over-diversify; rely on only a few pairs to spread risk
  • Make good use of the Stop Loss feature
  • Cut your losses (don’t push back a Stop Loss!)
  • Learn from your mistakes

For a conscientious person, Forex trading can provide excellent opportunities for financial gain. But for those who are just looking for a quick buck, currency trading may not be the best way to go. When exploring your options, make sure to know your broker, know yourself and to make careful, educated decisions.

%d bloggers like this: