Things to know to become a success
Forex trading is a tricky thing. Here are some Forex trading tips to avoid losses and maximize your profit. Knowing your current state as a trader is important as well as analyzing your needs. You should first know yourself before trading, which means that you should know how much risk you can afford and also how much you can invest. Your risk tolerance and capital allocation to Forex trading should not be too high or too low.
Planning your goals is of paramount importance, never deviate from your plan. Planning is the most fundamental thing towards achieving success in any field. Define what you determine will be success and what will constitute failure. Also know how much time and effort you can devote and whether you aim towards financial independence or simply towards generating extra income.
Most people miss out on choosing the right broker and end up losing money. An unreliable broker invalidates all the gains acquired through hard work, so choose judiciously. Account type and leverage ratio should be in accordance with your needs and expectations. For a complete beginner, it is necessary to undergo a period of study and practice through the use of a demo account. Make your choices in the most conservative way possible.
Begin with small deposits and gradually increase the size of your account primarily through gains. Focus on a single currency pair initially. A good idea is to restrict trading activity to a currency pair which you understand and sticking to the most liquid and widely traded pairs is a good practice. Do what you understand best and do not trade on the basis of rumors. It is best to work only in the field you are confident about and don't contribute to a losing state.
Control your emotions because self control plays an important role in trading as well as analyzing your success and failure regularly. Trading should be automated as much as possible, do not follow anything blindly. Simplicity is a very effective tool as simpler strategies yield better results. Going against the markets is not advisable, unless you have enough patience and financial resilience to stick to a long term plan. Forex is all about risk analysis and probability and no single method can generate profits all the time.
At the end of the day, patience is the key to success, so always stick to your plan. Being patient is important but being inactive will lead to failures, don’t give up because failures can occur in every field. Follow Forex trading tips and success will surely be yours.
Another important aspect to consider is that the forex Buy and Sell rates are influenced by a variety of different factors. These may include currency rate differentials, global economic trends, political events, weather and even extreme situations such as war or terrorism. These are often referred to as fundamentals. Read more about fundamental factors that influence forex trading.
Forex Trading Margins
The margin is the amount of collateral required by forex traders to maintain their open positions on the forex market. Unlike stocks and commodities, there are no margin calls in forex. If an account falls below the required margin requirements, then all open positions are automatically closed. For example, if an fx trader buys one mini lot of the EUR/USD pair for 1.50 at 1:100 leverage, then they will need $150 of their account in margin to maintain that open position. Read more about leverage and margins.
Forex Currencies Quotation System
In the forex market, currencies are quoted in pairs, for example, the GBP/USD or USD/JPY. The first currency in the pair is called the “base currency” and the second is called the “counter currency”. The basis for buying and selling is the “base currency”. For example, if a trader wants to buy EUR/USD, then he will buy Euros and sell Dollars. This means that he expects the Euro to gain against the Dollar. Every transaction on the fx market is double-sided, and performed with a buy/sell order.
FX Rollover
If a trader holds an fx trade in the spot forex market overnight, this position is rolled over. In most cases, you are likely to either pay or receive a rollover fee. The rollover fee is determined by the differentiation between the interest rates which are priced into the 2 currencies that are being traded in the currency pair. The trade transaction is settled after 2 days. If positions are held overnight, then the forex broker closes forex trades at the conclusion of the trading day, (5 PM EST) and new trades are simultaneously opened.
For example, the USD/JPY pair is traded at 1.40, the JPY interest rate is 3.5% and the USD interest rate is 1.5%. The pip differentiation is 0.60 pips. As a result, if you were to be long on JPY and short on USD, your trade would be found at 0.60 pips higher than previously. The example was calculated out by completing the following calculation: (base currency interest ÷ counter currency interest) × (day/days) × (traded rate).
Leverage on the Forex Market
Leverage allows forex traders to control more currency in a trade than they have deposited in their trading account. This is where the real power of forex trading lies. Therefore, trading with the leverage system wisely can work in your favor, and bring you big profits.
With 1:100 leverage, the trader needs 1 unit of currency to control 100 units in the forex market. Thus, it would only take 100 units to control 1 mini lot (10K) in the fx market or 1000 units to control 1 standard lot (100K). Read more about leverage.
Forex Trading Hours
The fx market is based on "spot transactions". The reason for this is that trading takes place 24 hours a day, 5 days a week. Trading never ceases in the forex market, apart for weekends and holidays. This includes Christmas and New Year’s Eve, when the forex market closes early.
