The potential for substantial returns draws many people to trade the foreign exchange (forex) market. Yet as a beginner, it can be difficult to know where to start and how to avoid costly mistakes.
Below, we share the key steps you can take to set yourself up to trade the markets successfully.
Understand the basics
The foreign exchange market, or forex for short, is the world’s largest financial market, where currencies are traded in pairs. You’re essentially speculating on the value of one currency relative to another. If you thought that the Euro would weaken against the US Dollar, you could have bought EUR and sold USD and profited if you eventually sold the Euros back.
Choose a reputable platform
The right forex platform can make a significant difference to your success, with trading conditions like spreads and commissions directly impacting your profitability. As a beginner, you can also benefit by choosing a user-friendly platform with cutting-edge tools like Tradu that help you trade more efficiently.
Whichever platform you choose, ensure it’s regulated by a well-respected financial authority that protects your funds and allows you to trade with peace of mind.
Develop a trading strategy
A well-defined trading strategy is your roadmap to success in the forex market. In order to put together your strategy, you’ll need to understand technical and fundamental analysis.
Technical analysis focuses on historical price charts and technical indicators to identify potential trade setups, while fundamental analysis considers economic data, central bank decisions and geopolitical events to assess the overall health of a currency and its future direction.
Many successful forex traders combine technical and fundamental analysis to make informed decisions.
Start small and manage risks
The forex market can be unforgiving, with sudden price movements turning profitable positions into massive losses in the blink of an eye. It’s crucial you start small, only investing what you can afford to lose.
Use risk management tools like automatic stop-loss orders that exit positions when losses reach a predetermined level. You should also never chase losses or trade on emotions. Stick to your strategy, stay disciplined, and gradually increase your position size as your experience and confidence grow.
Currency markets made simple
The forex market offers the potential for high returns. But as a beginner, you need to do everything you can to set yourself up for success, including following the steps outlined above.
But if trading currency pairs seems overwhelmingly work-intensive, bear in mind that there are more passive ways to make money in the forex markets, such as investing in currency ETFs or mutual funds.