Forex Basics You Should Know About Online Trading
Forex Trading, or the foreign exchange, is the largest financial market. Every day, close to US$6T circulates between institutions and individuals. You do not have to be a finance professional to join in.
Today, there is no shortage of Forex tutorials and other instructional content. Discover the most basic facts about the market and its workings, and become a trader in South Africa.
1. How Profit Is Made
Trading is the monetization of knowledge. You should be able to predict movements of currency exchange rates, and open positions to garner profit. Any trend can work to your advantage, be it a rise or a fall. The outcome depends on the accuracy of your foresight. Fortunately, traders have plenty of helpful tools.
Every beginner must learn about fundamental and technical analysis. The first system teaches traders to base decisions on information from the media. News about political and economic events may have a tremendous impact on currency rates. Economic calendars embedded in trading terminals summarise the most significant updates. Possible factors range from GDP to fiscal policies to international conflicts to oil prices.
Secondly, you may rely on indicators like moving averages and volume. Platforms like MetaTrader 4 come with an array of embedded features. By applying indicators to charts with different time frames, you may spot price patterns that may reappear. Nothing prevents you from using both technical and fundamental systems in your work.
Also read: Bank of Nigeria sells US$50M to gauge forex demand: traders
2. Keep Risks Under Control
Risk is an essential part of the game. Traders may not eliminate it completely. Your goal is to keep losses in check, rather than avoid them. There are two ways to do this — via portfolio diversification and system features like Stop Loss.
Stop Loss allows you to set the acceptable price level, so the system executes the trade automatically once it is reached. You can find a simple video tutorial for Stop Loss on YouTube. This measure prevents excessive losses if the market suddenly turns against you. A similar feature is called Take Profit. You can set it to collect desirable returns.
Finally, consider diversifying your portfolio after you master Forex. Traders should gain exposure to different markets, as this limits their risks and boosts profits. For example, in addition to currency pairs, you might trade stocks, precious metals, and derivatives like contracts for difference (CFDs).
3. Long-term and Short-term Strategies
For day traders, Forex becomes a full-time job, as they spend several hours per day analyzing the market and making their moves. Swing traders may check the market only occasionally, as they are focused on the broader picture.
Today, there is a wide range of strategies to choose from. Learn about the most basic approaches, and try using them in the demo mode. Check out this forex trading tutorial by ForexTime.
No strategy is guaranteed to bring returns. Everything depends on your own skillset, analytical abilities, and foreign exchange. Remember that market forces are beyond your control. A skilled trader may foresee changes, but not program them. Therefore, be wary of any ‘gurus’ that promise quick riches. Focus on building your skills and knowledge.
4. Correct Attitude To Failures
The market is not always predictable — even professionals may lose their deposits once in a while. Mistakes can and will happen. But how can you make them as rare as possible?
When a trade fails, stop and look back at your actions. What caused the negative result? Was it your own fault, or did the market move erratically? Every failure is an opportunity to learn and perfect your strategy.
What sets experts apart from amateurs is that they keep calm under pressure. When they make a mistake, they review their behavior to prevent the same mistakes in the future.
5. Importance of Emotional Control
You may be surprised that Forex profits are closely connected with emotions. Traders should never work when they are depressed, angry, or overly excited. Emotions cause impulsive decisions which are rarely lucrative. All too often, traders lose money because they are unable to think clearly. It is advisable to base every decision on logic and rational analysis, rather than hunches. Knowledge is key.
Start Online Trading Today
South Africa has a growing army of traders — in fact, it is the leader on the continent in terms of Forex volumes. Not every trader succeeds, but there is plenty of information on how to make profits consistently. Therefore, keep an open mind, continue learning, and make the most out of demo trading before switching to a live account.
Original article on The Exchange
