The 3 Things To Do Before Entering Forex

The 3 Things To Do Before Entering Forex

by November 9, 2021

Forex trading has a massive daily trading volume, roughly $6.6 trillion and rising from $5.1 trillion in 2016 to give you some idea of the speed of that growth. In the online world, a big community of forex traders exists, some 14 million registered forex traders in 2021 were actively speculating on geopolitics and the movement of currency valuations.

It’s a unique market to be involved in, operating 24 hours a day for five days a week, unlike most exchanges which close at some point every day, plus weekends. It’s a fundamentally simple mechanism that lies behind forex, too. Buying low and selling high, with small deposits to get started and ruled by simple trading fees and taxation policy make it highly attractive to any sort of trader. That said, trading forex carries the same risks as any other market, and its low barriers to access, as tempting as they are, don’t mean you should enter forex lightly. You’ve got some homework to do first.

Picking A Market

A seasoned forex trader isn’t leaping into trading any old pairing of currencies. They understand implicitly the products they’re getting involved in. That can mean some research into past performances, the strength, and the volatility of certain currencies. Failing to acknowledge some of those basics on pairs is as inadvisable as picking a stock because you think the logo looks interesting.

Picking On Paper

You’re decisions over the entry and exit points are your decisions alone. This means you must decide on the size of your position and rules to dictate when you take a long or short position on a chosen currency pair. A practice account and FX trading literature is widely available and some platforms really bolster these tools, to help their members become self-sufficient traders, making their own informed decisions, rather than using guesswork to pick the right pairings to suit their needs.

Who’s Hungry?

Something pretty unique to forex is the customisable exposure available to you. Because of the sheer number of currency pairings, you’re able to size your positions based on the capital you have and the market’s behaviour. With the application of leverage, traders can also access more aggressive or conservative trading strategies than they typically could in other markets. However, knowing your appetite for risk is a priority before you start doing this.

A final piece of advice would be to decide on the type of investor you want to be. The typical three are the day, swing, and position traders. Effectively, you’ll want this to fit into your daily schedule and routine. A day trader tries to move to trade within 24-hour increments, swings will focus on days to weeks and position traders focus on months or more to see the changes they’re expecting to happen.

Something that these trading types demonstrate, combined with the rest of the advice given here, is that the one element of the equation you can’t miss in forex trading is yourself. Your ambitions, understanding, capital, and time are all critical factors to producing a strategy that suits you. To simplify that down further, invest in your investments – whether that be time spent studying news, guidebooks, the markets themselves, or using practice accounts.

 

Featured image credit: Photo by Marga Santoso on Unsplash 

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