When you’re initially learning how to get started trading and investing, real currency trading tips are difficult to come by. This is because currency trading (or forex or fx trading) is a much-maligned form of trading; there are just too many scams claiming to be able to make you millions of dollars while you sleep. Combine this with a relatively low barrier of entry, and high paying advertisers and you have the perfect storm for disingenuous information about a topic you’re really trying to learn about. The truth about currency trading is that it’s easy to learn, but difficult to master. Here are some tips for the currency trading beginner.
Don’t Over Leverage Yourself - For a forex trading beginner, the amount of leverage given can be quite overwhelming. The minimum deposit on some accounts is $500, and then you are given a forex margin of 1:100 (and sometimes higher). This amount of leverage is dangerous in the hands of a beginner. What does it mean? It means that with your $500 you are able to purchase half a million dollars of currency. Yes, that’s $500,000 USD in cash. You can purchase 5 standard forex lots of $100,000 with that amount of leverage. This would make every pip of movement in a currency pair worth about $50 (this is over simplified and will vary between currency pairs, but it is a fair approximation). A simple move of 10 pips will wipe your account out before you can blink. You will not get a chance to recover, you will be automatically closed out of the position for the loss, and hopefully slippage doesn’t leave you owing your broker any money (which it likely will). The point here is that you should start small. If you open a small account, trade mini lots. Mini lots are equal to buying $10,000 USD in currency, and makes pips only worth about $1. This is much more manageable for someone who is new and who doesn’t have a large account.
Practice with Real Money – Yes, just about every forex broker allows you to use a simulated forex trading account until the cows come home before you finally make the decision to pony up some cash. There are some theories that imply that brokers fix prices and order fills on practice accounts making it appear much more easy to make money on the Forex than it really is. This may or may not be true, but either way, paper trading can’t really give you the feel for the real market. Order fills will be immediate and unrealistically beneficial, and your emotions will be different when playing with fake money as opposed to real. As mentioned above, start with mini lots. $1 per pip is a cheap education while you nail down your trading strategy. You’ll have real money in the currency market, so your emotions will reflect this. You will find that losing such small amounts of money will affect you, but not hugely. This small effect will actually maintain itself as you grow your positions sizes. This is because you’ve had real money in the market while learning, and you’ve learned to stay cool while you’re trading. If you didn’t start out small, you might blow up when you begin losing large amounts of money with position sizes you weren’t emotionally ready to handle. In addition, the market mechanics will be totally real and not made up in some off-the-books market made up by your broker; sometimes brokers have you trading an internal market made up of only other practice accounts. This is an unrealistic situation compared to the real dog-eat-dog forex market.
Don’t Buy Expensive Indicators - One of the biggest mistakes people who are new to currency trading make is buying a bunch of expensive proprietary indicators in the hopes that it will make them more money. The problem is, if you buy more than one, you’ll likely find that the indicators conflict on when to buy and sell. This can be confusing for someone starting out. Secondly, you really don’t need all those indicators. You’ll start out buying these proprietary forex indicators, or just adding a whole bunch of the free ones before you understand what they do, and as you actually learn how to trade, you’ll end up taking them all off. Some of the very best currency traders use few or no indicators, and you can believe the ones they use didn’t cost them hundreds of dollars. Many times they develop their own, and if you’re lucky, you’ll find that they’ll give it away for free. In general, the only time someone sells an indicator is if it doesn’t work anymore, or never worked in the first place. Someone spent a lot of time and effort trying to “figure out the markets,” found out that their work was all for nothing, and they would rather get paid for something that doesn’t work than scrap all that hard work. The truth is, the currency market is a lot simpler than people want to believe, and indicators are just a way of interpreting the only basic fact of the currency market – price. Price vs time, price vs volume, price of one currency pair vs. another divided by time supplemented by the price of grain during the vernal equinox. I kid you not, there are indicators that are that absurd, and you’ll notice they all depend on price. Just keep an eye on prices, and know that history repeats itself, so resistance at a price level becomes support and vise versa. Knowing that simply fact will get you a lot further than the latest indicator.
There are probably more currency trading tips that we could share, but if you follow the ones above, you’ll stay in the game a lot longer than most beginners. Just know that over-leveraging will cause you to burn through your account before you know it, keep those starting position sizes small but trade with real money, and eliminate the noise. Learn to spot patterns in the forex market. If you get enough time watching charts, you’ll find these patterns are easier to pick out than a red spot on a discount cashmere sweater.
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