89-Forex trading is sometimes misunderstood as a simple way to make money, but it is actually quite complex. Although the foreign exchange market is the world’s largest and most liquid, trading currency is not the same as trading equities or commodities.
Accessibility, liquidity, and international nature, among other benefits of the foreign exchange market, have made it the world’s largest financial market.
With that in mind, let’s take a look at what you need to do to take advantage of the current boom in Forex trading.
Benefits of Forex Trading
1. Access to a Global Market
The forex market is a global market with traders and participants from all over the world. An average of over 4 trillion dollars is exchanged on the foreign exchange market every day.
Traders from all over the world purchase and sell currency pairs at all hours of the day and night, making the forex market a truly global market with plenty of profit potential.
2. Ability to Trade for Long Hours
Another benefit of the foreign exchange market is that you can trade for as long as you want; the market is open for 24 hours, five days a week. The foreign exchange market is not subject to any form of opening or closing hours.
Foreign exchange is conducted over-the-counter (OTC), which means that trades are conducted directly between trading parties with the assistance of a forex broker. Forex trading is not subject to the trading hours of any centralized exchange system because it functions in this manner.
3. High Liquidity and Low Transaction Costs
The forex market not only requires little capital to get started, but it also has modest transaction expenses once you’re up and running.
Additionally, the forex market has the biggest number of market participants when compared to any other financial market. This provides the maximum level of liquidity, allowing even huge orders for currency trades to be filled quickly and with little price variances. With high liquidity, the possibility of price manipulation and anomalies are reduced, therefore allowing for narrower spreads and more efficient pricing.
4. Profit Potential due to Rising and Falling Prices
Of all the reasons to trade forex, the high potential for profit is perhaps the most appealing reason.
Due to the rising and falling of prices in the currency market, you can easily increase your profit potential if the market moves in your favour and there’s also the chance of losing profit potential if the market moves against you.
5. Availability of tools to help you trade
There are several tools and trading platforms on the web, which you can easily access on your smartphone, tablet, or laptop. In fact, there are specialist platforms for those who are looking to take their trade to the next level.
In addition, you can find tools designed to improve your trading experience. Examples of such tools are the volatility calculator, Financial News Wire, Time zone Converter, Economic Calendar, Forex Profit Calculator and a Forex Compound Interest Calculator.
Favorably, there are a plethora of forex tools at your disposal, and even better, there are various free forex tools that new and experienced traders both may utilize.
6. Directional Trading is Unrestricted
Unlike the stock market, the foreign currency market has no restrictions on directional trading. This is because traders are continually buying or selling a currency based on the status of the market; you may easily go long or short based on your forecast of the currency’s value shift.
In addition, due to the great liquidity of the currencies, brokers do not collect transaction fees for such trading that are required in stock markets.
How You Can Make the Most Out of the Current Boom
There are several ways you can take advantage of forex trading and they are:
1. Be up-to-date on News and Events affecting the Forex Market
As a forex trader, you must keep yourself abreast with the latest news and events like interest rate changes and inflation because this can have a major impact on your trading and be the differential between your profits or losses. Being up to date on the latest news and events helps solidify trading strategies and offers an analytical approach against the technical approach used by most traders. It is important to note that to make the most out of the current boom, using recent news and events, you need to decide quickly as a trader because this news affects the market immediately.
If you wonder where you can get the best news about the forex market, your best bet is CNBC. Others include Bloomberg TV, CNN, MSNBC, etc.
2. Choose your Entry and Exit Points
Managing your money while trading is just half of what trading entails; the other half is your judgment of your entry and exit points while trading. It is important to note that you can’t be termed analytic, and your analysis will be useless where you make bad calls as regards your entry and exit points.
For instance, if you know that a particular currency’s value will potentially appreciate in some weeks or months, this knowledge will be useless where there is no understanding of the perfect entry and exit points, and you will incur losses. However, a perfect understanding of your entry and exit points will result in profits for you.
Note that the understanding of your entry and exit points will prevent losses where your analysis of trade is false, and it is the gateway to greater profit in the stock market.
3. Carry out weekly analysis of your trades
Doing a weekly analysis of your trade is quite important to you as a trader. Here are two reasons why you need to analyze your trades weekly:
It gives you an idea of the big picture in that stick market of your interest. During the weekends, the markets aren’t open, which gives you the opportunity to study the landscape without reacting to the market.
A weekly analysis makes it effortless to lay out plans for the next trading week, and you can easily register a positive attitude that allows greater profits. It allows you to trade with a plan, and as the saying goes, “if you fail to plan, you plan to fail.” Hence, getting an analysis weekly is your best shot at benefiting from your forex boom.
4. Choose a reliable forex broker
As a trader, getting a forex broker can be the difference between good and better in your sojourn. Here are some tips to look out for:
Checking out a forex trader’s reputation should be the number one thing on your list. For instance, in the US, forex brokers with excellent reputations are registered members of the NFA, that is, the National Futures Association and also the Commodity Futures Trading Commission.
How do you find out that a forex trader is reputable? This is simple! Visit their website and check the “About Us” area for their registration number.
Different account options
A reputable forex trader offers different accounts. When comparing amongst brokers, these are four areas to look out for:
- Depositing and withdrawal ease.
- Leverage and margin
- Requirements needed for the first deposit
- Commissions and spread
Trading in the stock market is a 24/7 endeavor. Hence, the broker of your choice must be readily available to help any time of the day. It is also essential to consider how effortless it is to access this person with a phone call.
Finding out the availability of a forex broker is easy, and a quick phone call is all you need to get the perfect understanding of the availability of a forex broker.
5. Use reliable free tools to cut costs.
As a trader, you have lots of free forex tools at your disposal, and some of these tools are quite reliable in improving your experience as a trader, and they are also cheap!
6. Determine your risk level
First, you need to ask yourself. “How much am I willing to lose? How much risk am I willing to take?”
When you answer this, you can then manage your risk adequately. Some traders take on more risks, sometimes more than necessary, and while this can lead to higher returns, it can also lead to life-damning losses. Hence, it is essential to figure out how much risk you are willing to incur in a trade, and this will ensure that you do not lose too much and give you the opportunity to trade again.
Indeed, Forex trading can change your life. However, where you make the wrong choices, and you fail to take full advantage of the forex boom, you might end up among the 1% who didn’t do well as a forex trader.
Hence, making the right choices, making the most out of your forex boom by ticking all boxes is your best bet at reaping all the benefits forex trading has to offer.