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Four things to do before you start Forex trading

Estimated reading time: 3 mins

If you’ve even a passing interest in the world of finance and investment, you’ll have found it hard to miss the pandemonium surrounding the very recent GameStop short squeeze and the frenzied retail investor presence around it.

While that saga is more or less in the books (with some substantial winners, losers and upcoming legal investigations resulting from it), its legacy remains in an influx of brand-new, wannabe investors looking to make a quick buck online. That means not only a few million new faces to be found on retail trading apps, but also a much-increased interest in another hot investment area – Forex.

Forex trading, like any other investment opportunity, is a potentially lucrative pastime, but also one that has huge loss potential – particularly to fresh faced investors with little to no knowledge of the market – thus requires an extremely cautious approach. Whether you’re brand new to trading or just new to Forex, there are a number of preparations you must put in place to ensure you enter your chosen market on solid footing.

Read around the market

If your first question is “what is Forex trading?”, then you’ve got an awfully long way to go before you should even consider opening a Forex account. With thousands of “Forex trading experts” promising overnight success across various forms of social media, you’d be forgiven for thinking you can step into trading with a surface level knowledge of the subject, however that is a recipe for disaster regardless of the investment market you’re looking to get into.

Each trading market carries its own detailed intricacies, processes and legalities that are best understood before tampered with. In Forex, you’ll want to know your trading currencies inside and out, what factors influence currency fluctuations and who is involved in each trade. Once you have an idea of how these fundamentals work, you can move on to the next step.

Understand the different strategies available to you

If you have a solid grasp on how the market works, your next task is to establish what trading strategies are available to you and choose the right approach for your circumstances. There are a variety of different strategies to take on:

  • Position Trading
  • Swing Trading
  • Day Trading
  • Scalping
  • Transition trading
  • A combination of the above

What strategy or combination of strategies will work for you will be dependent on a variety of factors, including the sum of your investment and the amount of time you want to commit to Forex trading. You can find a run-down of the pros and cons of each strategy mentioned above here.

Shop around for best account

If it’s time to take the plunge, you’ll need to whittle down the countless trading apps out there and find a broker that offers you the best package. To trade in Forex markets efficiently, you’ll need a reliable broker that will act on your behalf quickly, so you’ll almost certainly want to go with one of the big gun options that handle large amounts of trade on a daily basis.

Some vendors offer a forex bonus account to new traders, giving you an incentive to join them over their competitors and adding a little extra juice in your portfolio. While it may seem fickle to go with the app that offers the best bonus, you can be sure it plays a huge factor in many a new traders’ thinking.

Understand the potential consequences

While on the surface Forex trading offers the prospect of glamour and riches, there’s also a considerable dark underbelly of potential losses that can be, at best, frustrating and, at their worst, crippling. In any game of investment, especially over the counter trading like Forex, there always have to be winners and losers. Unfortunately for the newbies who rush into trading quickly with big dreams, you’re more likely to come out on the wrong side.

That’s why it’s essential you do your research and know what you’re doing before you get into the market. But, more importantly, it’s also vital that you understand the potential risks and ramifications of the market and the losses attached. So, only invest what you can afford to, and ensure that you can afford to fail.There’s no denying the earning potential of Forex, but it’s not a trade to be messed with if you are a novice. Before you take your first steps on the virtual trading floor, get to know what is an incredibly interesting world, and you’ll stand yourself in much better stead to make money from day one.

 

About the author /


Simon is a creative and passionate business leader dedicated to having fun in the pursuit of high performance and personal development. He is co-founder of Applied Change, a Business Change consultancy based in the UK. Simon is also an Ambassador for Gloucestershire business. Simon is an Associate Member of the Chartered Institute of Professional Development.

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