The term Forex stands for Foreign exchange and in simple terms means trading in foreign currencies from different countries and let us takes an example the US Dollar against the Euro. We all know about foreign currencies and since our childhood we have collected coins and bank notes as and when someone in the family must have travelled abroad or would return from a trip. Each bank note and coin had a different colour, picture and signature that would take us to a different part of the world altogether. Now the basic question that pops up in our head is how much one may make by Forex trading? Many of us have heard of traders making millions in the financial markets. Now it all depends on various factors such as account size, risk appetite, risk management, trading strategy, etc etc. It is learnt that your profit percentage has something to do with the risk factor but that is not all and your risk to reward and win rate should be someway defined and understood. However the only good thing about the Forex market is that it allows you to trade 24 hours a day during the week and thus offers you a lot of profit potential because of the leverage offered by the forex brokers. Let us better understand the economics of Forex trading in order to facilitate and convince a fresher to go for it.
Forex trading can be risky without proper knowledge about the market and the trade and this is why a proper research and understanding is needed prior to you taking a plunge into it. Be pretty clear and specific about your goals and know which way you are going as otherwise it can be risky for you. Let us consider few points which will throw more light on things each trader should explore in Forex trading.
Honestly know your risk tolerance and risk appetite. As a trader known his/her limits in equities and derivatives the same rule is applicable here in forex trading as well. Understand currency derivative is a leveraged product and you get much more leverage than what you get on your equity derivatives. Thus it is important enough to know your risk capacity and trade accordingly. Do not get greedy or overboard as any negative movement can push you back.
Choose a Broker who is reliable and offers a transparent and appropriate trading platform. Always chose reputed and well known broker and this is of prime importance as your research between different brokers can pay off and be helpful one day. You must know each brokers policies and how they go about in the market. Just as an example that trading in over the counter market or spot market is different from trading in exchange driven market. Thus your brokers trading platform should be suitable the way you wish to do the trading analysis.
Chose your Entry and Exit Time carefully
This is something which is the most crucial thing that one needs to identify in the Forex market. If you learn this well you are half way home. Many traders tend to get confused by going through too much of information from varied sources and thus lack vision what time to enter the market and what time to exit. Remember too much of information is also not good at times and there are many articles and news which may just not work the way you want. Take your call wisely and actively pay attention to sell signal or buy signal or any other on the chart.
Chose a Methodology and stick to it
Before entering the forex trading market you need to have some idea on how the market works and what to do. You should know when to make decisions and execute them in the market. You should know what information you need and which one to rely on and take a call. In addition to the above you should also have a thorough understanding of when to enter and when to exit the market without getting into any complication. Remember whichever methodology you chose is consistent and give it some time to yield results and do no run in too many directions and after a lot of information from different sources.
Over the weekend when the markets are closed it is time for some homework and as a smart investor/ trader you need to study weekly charts to look for patterns or news that could affect the trade. Analyse news and go through the experts call how they use information and then see how much these calls work in accordance and not. With time you would be able to learn to take calls and make your predictions but the wise way is to be patient and observe.
Keep a record
Always always keep a record of all your dealings and especially printed records. Print out a chart and mark all the reasons for the trade and this would be a great learning in all aspects. You may make relevant comments on the chart and also include your emotional reasons for taking a call at least this would help you in future trades.
Forex trading is a big market and there is so much relevant information about it online which you may go through in addition to the above and accordingly make your decisions.