Forex trading is now a popular way to make money online. It is open for business 24 hours a day, from Sunday evening to Friday night, and it is available worldwide. Current estimates put the daily trading volume at over $5 trillion. So, if you have a computer that’s connected to the internet, all this is readily accessible.
Forex trading is a nice way to earn some extra income alongside your day job. Once you master the basics and you increase your ability to make profitable trades, you may even go on to become a professional FX trader.
The most effective way to begin trading is to find a day trading strategy that works for you and your broker. But before you get into that, here are some of the most important basic trading strategies and tactics you should be aware of and consider implementing.
1. Manage Your Funds
Funds management is the ability to determine how much to put into each trade. Before you start trading, you must determine how much you can afford to risk in a trade. Ideally, you should not use more than 2% of your entire trading capital for a single trade. Remember that you will incur some losses, from time to time. But with effective fund management, your profits should make up for those losses.
2. Choose a Reputable Broker and Software
To trade forex successfully, you must work with an efficient and reliable broker. Also, your broker must use the best software tools, especially if you want to engage in automated trading. As you check for the best brokers that serve your country, you need to look out for qualities such as:
* Transaction fees
* Reputation with regulatory bodies
* Ease of deposit and withdrawal
* Trading platform(s)
* Customer support
Ensure that you practice with your demo account and interact well with the support team before you start real trading.
3. Allocate Trading Time Wisely
Endeavor to trade while your mind is alert so you can make smart decisions. Trade when you can monitor the markets effectively and discover good trading opportunities. Study the best times of the day to trade during this initial learning period or while doing demo trading.
Always be aware that the market will be volatile when trading opens in major markets every day. Some experienced traders may know how to study the patterns and make a quick profit. But as a beginner, you should trade in a more stable and predictable situation. So hold back for the first 20 minutes before you start the day’s trading.
4. Work With a Demo Account
A forex demo account is the best way to gain experience without incurring any risk. Some accounts are just practice accounts, others are linked with simulators. Those with simulators allow you to try new strategies and conduct “unlimited experiments” without the risk of losing capital.
Demo accounts are not just for beginners, they are assets for the experienced trader as well. After you learn the basics of forex trading, you can continue using them to see what will happen if you choose a particular course of action on a trade. It’s the best way to test the efficiency of new software or broker.
5. Master the Use of Forex Orders
A forex order is simply a trading directive to your broker. The most widely used order types are:
* Market orders: These are used to open trades at the quoted market price. You can use a buy order when you expect the currency pair to rise, or sell order when you expect the pair to drop.
* Limit order: This order can open a trade at a specified price and expiry date. You can use it for buying or selling. This type of order will only be executed when there’s a quote at the desired price.
* Stop order: Use this to buy a currency pair when the trigger price is higher than the current market price and then sell it when the trigger price falls below that market price.
* Take profit order: This is the order you need to close your trade and take away your profits.
* Stop-loss order: Use this order to reduce your losses in a trade and to prevent the loss of all your capital. If you gave a buy order and the rate starts to drop, this order will minimize your loss.
6. Learn to Read and Understand FX Quotes
The forex quotation system uses three-letter abbreviations with two currencies. The one on the left is known as the base currency while on the right you have the quote currency. There’s a quoted price that specifies how much of the quote currency is needed to buy or sell a unit of the base currency.
For each currency pair, there’s a bid price and asking price. In concise terms, the bid price is the amount you need to pay to sell. The asking price is the amount required to buy the currency pair.
These are some of the strategies you need to learn to begin your journey towards successful forex trading. After you’ve learned and mastered the basics, you will be able to move on to more advanced strategies that require more complex tools and systems.