The forex market has become an attractive marketplace for trading due to its accessibility and high probability of profits. But becoming a forex trader is a serious business, and one should be ready to devote enough time and effort to learning the technicalities and fundamentals of currency trading.
However, many beginners tend to jump in without gaining enough knowledge, and they even have some myths and misconceptions, making them make wrong trading decisions, which end up being costly mistakes in the actual trading process. Such a situation should be avoided at all costs; for that, you need to know some facts about the forex market.
In this article, you will read about the top 10 facts you should keep in mind while getting into forex trading as a newbie.
Table of Contents
The forex market is very liquid and volatile, creating countless trading opportunities. But just having all these opportunities does not guarantee success for all. Looking for shortcuts is the worst thing a beginner can do in the forex market. First of all, there are no real shortcuts and cheat codes in trading. Secondly, anything that looks like a shortcut might be a scam and may lead you to a dead end instead.
Hence, you should not be entering the forex space with the goal of making millions in a short span of time. Some success stories might be like that, but that is quite rare for an average beginner. You need to be patient and follow a professional and rational approach towards trading. It will take time and effort to attain long-term success, and consistency is the key to unlocking your true profit potential in trading.
One bitter truth that you should know about the forex market is that you can’t trust anything except the numbers or figures you can see while trading. The basis of your trading decisions should be thorough market analysis, logical calculations, and a tight risk management plan. The last two can be achieved through trading calculators, which allow you to get the accurate values you need to trade successfully. It is important to remember that intuitions and emotional trading won’t work in this market. That would only be guesswork, and you can never leave it to your luck unless you are fine with losing all your money in the process.
You should only enter the live market when you are well-equipped with a well-defined strategy and skill set to execute the same without confusion. You will surely learn more and get better with hands-on experience, but having some basic understanding and trading skills is essential to stay safe in the initial phase of your trading journey.
The availability of leverage is one of the key reasons for the popularity of forex trading. The concept of trading with borrowed funds from brokers is there in every other financial market, but the forex market is one step ahead of them with an enormous supply of leverage. Leverage can make or break your account, as it can amplify your profits and make you drown in losses.
In fact, I suggest you not use any leverage until and unless you are sure about your skills and strategy. You need to be confident about the profit potential of your strategy and your win rate before you start placing leveraged trades. Even then, you should only be using leverage within limits and ensure the broker promises negative balance protection to secure your account.
Most beginners who enter the forex market don’t have a coach or mentor to guide them. Some of us read books, watch free videos, or take online courses to learn basic and advanced trading concepts. But the Forex demo account you use for practice and testing your strategy can also be your greatest teacher.
It is the best place to learn while making harmless mistakes and gathering some experience with real-time market conditions. A demo account is a great way for newbies to practice and polish their skills without stress. Thus, you must spare time to trade a demo and take your trading lessons from there.
This fact might seem contradictory to the theory that higher risks will result in higher rewards. Indeed, the risk you take for a trade will also determine the profits you can earn from the trade. But you should still risk all your capital to make it big within the first few trades. Higher risk will also result in higher losses when currency price fluctuations become unfavorable, shattering your expectations.
The forex market is sometimes unpredictable, and you should always plan for the worst-case scenario. And that plan is referred to as risk management in trading. You can use a margin calculator to find out how much margin you should use to make a certain amount of profit, but keep in mind to use a stop loss in every trade for unfavourable market movements. The maximum risk you can take for a single trade is 2% of your trading capital balance. Those who risk more than this may end up with huge losses, and you should not be trading with such uncertainty in any situation.
Risk management is only a measure to minimise losses, but losses will happen one day or the other. You can keep the losses at a limit, but you should be prepared to face them once in a while. Being afraid of losing and being risk-averse is not the right mindset for a trader. Those who enter the market expecting to win every trade without losing anything will only be disappointed and devastated later on.
You should be ready to realize profits and losses with a neutral mindset. Never risk anything beyond your risk tolerance, and always confirm the trade setup will align with your risk/reward ratio. Use a stop loss and pay the most attention to position sizing. Like a pro trader, you can follow these steps to deal with the losses.
Beginners are often emotionally attached to their trades and start losing their minds once they lose some money. As a forex trader, you must learn to handle the situation professionally and move on with a positive mindset. Emotions like fear, greed, and excitement will always come up when you start trading with real money, but you should never let these emotions make decisions on your behalf. You should be the one controlling your emotions and not the other way around. This applies to any career or profession you take up, and emotional control needs to be practiced in forex trading, too.
Another fact you need to remember while trading forex. A trade you were winning can turn into a losing trade within a short time. It is ideal to keep your winning trades running, but you should lock your profits with a take-profit order in any situation. The logic behind it is that the market can reverse from any point, so you don’t want to lose the profits you have made. You can use a pip calculator to determine the profits you need to make in a day, and when that target is reached, you should call it a day regardless of how trending the market gets afterward.
Many traders fear missing out on opportunities to trade, and due to this feeling, they might end up opening random trades that do not even fit with their strategy in the first place. You need to understand that opportunities will always come to you as long as the forex market is there, and it is a long time. So, you must wait until you find your ideal trade setup.
Last but not least, forex trading is not easy, and it may not be the right cup of tea for everyone. The market is accessible to everyone alike, but not all of us can deal with the complexities of currency trading. Some of us may not be financially ready to take up the risk or may not fail to handle the stress of trading. But you don’t need to give up on the idea and can try it with a cautious approach if you can afford to do so.
Wrap Up
With that, you have learned the top 10 facts to remember about forex trading before getting into it. Having said that, the forex market is still expanding and growing, with many innovative trading approaches being introduced every other day. So, you must begin on the right note to get the maximum from this lucrative market.
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