- Forex trading is a huge market, and therefore there are a lot of things to learn
- Brokers are easily found, but should be regulated
- Researching a strategy is crucial
The Forex markets feature plenty of bits and pieces of information on the Internet that are useful, but unfortunately for the beginner some of the jargon and initial steps can be a bit of an issue.
Choose a broker
The first thing that a trader must do is choose a broker that will give them access to the Forex markets. The most important thing that you should look at is whether or not the broker is regulated. In South Africa, the Financial Services Conduct Authority is the regulatory body that keeps an eye on brokerage firms to make sure that they are looking after the best interests of their customers.
When you choose a broker, you will then download the platform that they offer in order to access the market. The best trading platform in South Africa is available freely, allowing the trader to practice with a paper account instead of risking real funds. The Metatrader ecosystem is one of the favoured trading platforms by Forex traders around the world, due to the fact that it also allows the ability to trade CFDs, or “contracts for difference” markets in various assets beyond currencies, and has years of proven track record when it comes to processing order flow.
Research your market
There are a plethora of educational sites on the Internet that will teach you things such as technical analysis, fundamental analysis, and sentiment analysis. Understanding different ways to analyse the currency markets, will open up trading opportunities for you. Keep in mind that research does not guarantee that every trade will work, but it certainly puts the odds in your favour.
Technical analysis is the art of “chart reading”, when traders start to look at price through the prism of where it has gone in the past, and sometimes more importantly, where it has not gone. Fundamental analysis features studying economic indicators such as Gross Domestic Product, interest rates, employment rates, and various other readings that can give you an idea as to which direction an economy is going.
Sentiment research is a bit different in the sense that it measures whether or not traders are particularly interested in a currency. For example, trader sentiment may be very good for the British pound, but poor when it comes to the Japanese yen. Trader sentiment goes a long way, because you need other traders to push the market in the same direction you are aiming for.
Develop a trading strategy
By far one of the most important steps that a retail trader will take is developing a strategy to trade the markets. Unfortunately, far too many traders simply “jump into the market” with real money instead of understanding the mechanics of trading. Most professionals will tell you that you need to have a system that you have backtested rigorously in order to determine whether or not the way you are attempting to trade will make money in the long run.
Remember, not all trading strategies need to have a high success rate when it comes to profits, because some will employ longer-term strategies that can pay 10 times the amount that you would risk. Conversely, some strategies have much higher success rates of hitting profit targets, because they are aiming for much more modest moves. It comes down to the trader psychology, and without a doubt the best way to get beyond that is to understand whether or not the trading system typically makes money over the longer term.
The trading system will consist of rules for entry, managing the trade while it is active, and rules for exiting. By using a demo account, one that does not use real money, you can get familiar with the trading platform and test your trading strategy at the same time. In this sense, it becomes a win-win situation as you not only will have the confidence to trade real money once you find a system that works over the longer term, but it also makes you extremely familiar with the platform, which of course is important.
As far as finding ideas for trading strategies, those are found all across the Internet. Some are based upon technical indicators, some are simply interested in places where buying and selling has occurred previously. Beyond that, some will simply look for fundamental reasons to put a trade on. In that sense, there is a lot of research to do in order to find which strategy not only makes money in the long term but fits your personality. If you are not a very patient person, it makes no sense to trade in a situation where you may have to sit on a position for several months as an example.
Currency trading is a big world, explore it
Trading the currency markets is a huge endeavour, and something that you need to have passion for. There is always something new to learn, which is part of what makes it so enticing. Yes, there are the profits of course that are possible, but at the end of the day it is something that you need to love. This is because learning everything is impossible, therefore each day at work becomes slightly different. If you are one who likes challenges, especially ones that can reward you quite significantly from a financial point of view, currency trading might very well be for you.
