Four tips on how to succeed in the forex market
Four tips to help you succeed with forex investing
Investing money and trading commodities is a very alien concept to a lot of people. The vast majority of wage earners save their money in a bank account, where the most they can gain is the annual interest rate on a savings account.
While investing in bonds is also a relatively easy possibility, such commodities do not offer the best returns. Through platforms like Oanda, the average person can open the door to the world of foreign exchange trading.
The forex market is full of liquidity and possibilities, which is why it is such a great fit for new traders. Below are four tips on how to succeed in the forex market in 2022.
1. Manage expectations
Too many people view the forex market as a “get rich quick” scheme, but that is not how it works. If everyone could log onto their forex account and start trading their way to tens of thousands of dollars, no one would need to work their day job.
You can make money through forex trading and earn an excellent return on your savings. Think of it as akin to buying and selling stocks, where a 10 or 20 percent profit each year is a massive win.
Take it slow, make sensible trades, set low expectations, and you can make forex work for you.
2. Define your investment strategy
What strategy are you planning to implement with your forex trades? Depending on your savings, earning potential, age, and life circumstances, you may have specific investment goals that you wish to achieve in the medium and long-term.
Someone who is within ten years of retirement may have entirely different goals to those who are in their 20s, 30s, or early 40s. By understanding your circumstances and goals, you can formulate a forex trading strategy to help you accomplish those objectives.
Those who are younger and plan to work for several decades can take more risks with their forex trades. Someone approaching retirement may want to exercise a little more caution when they trade, as they must balance the desire for profits with the aim of maintaining their retirement nest egg.
3. Remain rational
As you establish a risk profile and strategy for forex investments, you must learn to remain rational and focused.
As currencies bounce up and down in value and some of your trades do not pan out as expected, you may face the temptation to take extreme action.
Do not make moves based on your heart or momentary instinct. Think back to your strategy and risk profile. Make decisions that are rational and considered.
4. Use stop losses
One of the best ways to avoid incurring losses on a forex trade is through a stop loss. The idea behind a stop loss is that you enter into the trade that you want to make when the currency pair reaches a specific price.
The stop loss ensures that you do not come back ten hours later to find that your forex portfolio has lost half its value because of a few bad trades. If you enact stop loss on trades, you can always limit your losses.
Say you set a stop loss of 10 percent value on each trade. That means if the value drops by ten percent, you will automatically sell, take that loss, and move on to another trade in the future.
Stop losses are even more useful when you are trading using leverage, which allows you to put more money on the line than is in your forex account.
Play it safe at first
The temptation to dive deep into the world of forex is very tempting for new investors. If you are dipping your toes into this world, start slowly.
Many platforms allow you to perform mock trades for one or two weeks, where you are investing pretend money and then assessing how your trades perform over a few hours or days.
As you understand your strengths and weaknesses, you can start to trade with real money. Keep your trades at an affordable level, and avoid using margin for at least six months, and you will have a lot of fun making money on the forex market.