With its uncapped profit potential and the ability to work from home, forex trading is a very alluring endeavor. But underneath that grandiose picture of wealth and comfort, forex trading is also a risky and sophisticated business. Here are things to consider before you learn forex trading through firsthand experience.
Determine how much capital you can allocate to your trading account. While many forex brokers will be happy to offer you an account for as low as $50, starting with an underfunded account forces you to over-trade and, consequently, lose money over time from short-term trades and broker commissions. Start at least with $1,000 so you can trade with mini lots.
Acknowledge risk involved in trading forex and any financial market for that matter. How much can you risk per trade, per week, or per month before you stay on the sidelines and regroup? Risk management is the single most important aspect in trading. You want to be able to preserve capital but also grow it at the same time.
Demo Vs Live
Demo accounts provide a risk-free environment for learning the forex landscape and testing your strategies and ideas. However, demo account trading is frowned upon by some in the trading community as it fails to take into account human emotions. It’s easier to close a losing position in a demo account than it is in a live account. Use demo accounts to hone your technical skills but learn to control your emotions through a live account.
The broker you use to trade with will have a large impact in your trading business. If a broker cannot execute orders or price feeds in real time, you won’t be able to maximize gains from your trades. Your broker should also charge competitive commissions for every trade and be willing to provide technical and educational support as needed. All these resources can help you become a successful trader, but are not provided by all brokers.
There are many things to consider before you learn forex trading but the most basic would be your strategy or strategies. Decide beforehand if you want to swing trade, scalp, range trade, or any other strategy that allows you to extract consistent profits from the market. Constructing a trading strategy is simpler than trying to follow it. Make sure you set parameters you are comfortable with and can strictly follow over time.