Foreign exchange, or Forex, trading is a global market in which all the world’s currencies are dealt. It is, by far, the largest and most liquid market in which some $5 trillion is traded each day, dwarfing that of all the stock markets of the world combined. Like stocks and shares currencies of course are volatile, and can decrease in value as well as increase. As a result forex companies are obligated to issue the stock warning about heavy losses being possible whenever currencies are traded.
All the same there are strategies that can be applied which minimize any exposure to loss and allow for the best possible chance of making a profit. Here we take a look at a few of them.
#1: Define Your Goals and Stick to Them
The object of the exercise has to be to make a reasonable profit within a timespan that is realistic. The authoritative financial advice platform Investopedia argues that “the best traders hone their skills through practice and discipline” and this is a sound principle to live by. When a realistic assessment has been made of possible profit margins there is no need to become impatient or greedy.
#2: Use a Trustworthy and Competent Broker
Foreign exchange brokers come in all shapes and sizes but it is not unreasonable to expect any that want your business to be able to demonstrate a track record of success in forex trading over a sustained period. Study any reviews that may have been made and pay heed also to such ostensibly peripheral matters as customer service and the efficiency of any software used. Remember that in forex success exists at the margins.
#3: Understand the Particular Benefits of Day Trading
Global trading within the forex market is high-volume, and subject at times to fluctuations caused by external and seemingly unrelated events. Taking advantage of short-term volatility, if managed correctly, can generate quite sudden and substantial profits on a scale not normally possible through a longer-term and more cautious investment strategy.
#4: Understand Correlations with Other Markets
Quite often there is an identifiable correlation between currency fluctuations and movements in other markets such as commodities. This can be a generic principle or can be specific to one particular currency, especially in economies which are strongly dependent upon one or a small number of commodities such as natural resources and mining in Australia. A thorough understanding of market conditions and economics in the domain whose currency you are trading increases the likelihood of making the right call when dealing with that currency.
#5: Don’t Chase Losses
In forex trading as in betting there is always a temptation to chase losses by doubling down on specific investments and pursuing a highly risky “all or nothing” strategy in an attempt to recover failed investments. It is important always to keep a level head and to learn to love losses as an integral feature of life as a successful foreign currency trader.