Top 5 tips for forex trading beginners. Image credit: AdobeStock
The ever-growing foreign exchange (forex) market attracts more and more investors every day, and It’s more than likely that you’re including yourself in this category.
Whether you have yet to start your forex trading journey, or you’re in the very early stages, you undoubtedly want the best beginner’s experience.
In light of this, we’ve devised the top five forex trading tips for beginners, to ensure you’re fully prepared to achieve as much profit as possible, and greatly minimise your risk, throughout your trading journey.
When starting your forex trading journey, the first thing you’ll need to do is find a trading platform.
This is potentially the most crucial stage of your beginner’s process, as this will be the place where your entire trading journey takes place. Your trading platform has the ability to define your entire trading experience, and must therefore be given the utmost consideration.
The best trading platforms will be easy to manoeuvre and use, for with vital trades taking place, you don’t want the added confusion of a complicated platform. Also, a great platform will offer highly expert guidance, as well as a plethora of professional features to aid in securing profitable returns on your trades.
As a beginner, if you’re able to choose the right trading platform from the get-go, then your whole forex trading journey will have an expertly designed foundation.
The most popular method of trading on forex is through the purchasing of contracts for difference (CFDs). This alternative to traditional trading, allows you to buy speculations on price movements, as opposed to the underlying assets themselves.
For example, opening a long (buy) position would mean that as the value of the asset – on forex being currency pairs – rises, you’ll receive a profit. If it were to decrease, you would gain a loss, unless you had opted for a short (sell) position instead, which profits off price falls.
Once you have the basic understanding of trading forex CFDs, you can then branch out your knowledge to useful strategies of trading.
One example being CFD position trading. This strategy involves opening trade positions, currency pairs, and holding them for long periods of time. This can allow traders to capitalise on long-term price movements, and close positions at significantly higher values than they opened with.
As you can see, understanding the main methods of forex trading, as well as certain useful strategies, is an essential tip for all forex beginners.
Another great tip for forex trading beginners, is to learning how effectively use leverage trading.
When trading CFDs on forex, you are able to gain large exposure on trades, whilst only depositing a fraction of the capital that would be needed for the full asset value. This is known as leverage trading, and involves a leverage ratio to determine the level of exposure for the initial capital.
For example, with a leverage ratio of 1:20, you can open a position on a currency pair worth up to £20,000, by depositing only £1,000. This means trade profits have the chance to be huge, since your profits are calculated from the £20,000, not the initial capital.
However, be aware that the same is true for your losses. If you should lose on a trade, the losses will be calculated from the £20,000, even when you only deposited £1,000.
By understanding this, you can start making more strategic trades, and learning how to assess the risk and profit potential of each one.
Risk management tools are also essential for your trading journey as a beginner.
Losses are always made in trading, regardless of your skill or dedication. However, with risk management tools, you can ensure your losses are reduced as much as possible.
There are a variety of risk management tools available. For instance, you could use automatic orders on your trades. These are automatic settings that close trades when the price movements reach a certain value, even if you’re not there to do it manually.
As an example, if a buy position’s asset value is decreasing, your automatic sell order will close the position once the losses exceed a certain amount. This will prevent you accumulating substantial losses, and you can rest easy being away from your platform, knowing your trades are protected.
Technical indicators provide forex traders with thorough insight into market performance, and asset movements on a continuous basis.
Accurate predictions of price movements are the key to profitable trade returns. Therefore, you need technical indicators to ensure this is achieved, and that your market analysis is yielding clear, detailed outlines of market performance.
For instance, one highly used technical indicator is the simple moving average (SMA). This analyses the average price movement of a particular asset over a select period of time. This will help you identify any present trends in the asset movements, and thus, open more accurate, profitable trade positions.
With the use of various technical indicators, your market analysis will be significantly improved, and therefore, as will your risk minimisation and return on investment (ROI).