Forex is short for foreign exchange, and refers to the changing of a particular country’s currency to a currency of a different country. The sale of currencies and their individual value is determined by supply and demand factors, including political stability, interest rates, trade, tourism and economic strength.
With any kind of trade or speculation, there is some risk inherent in the endeavour. Currency trading or forex is no different, and you should understand the risks before you invest a large chunk of your savings or income in the market.
What is My Risk Appetite?
You should know what your appetite for risk is like before you set yourself up as a forex trader. This is very important because if you don’t understand your capacity for risk, you could stand to lose a significant amount of money. Think about how much you are willing to invest, and how necessary this capital is to you. You should never invest money that you can’t afford to lose.
The forex markets are ever changing and can be quite unpredictable, so it’s important to be prepared for any eventuality. The risk in currency trading is partially created by the speed at which online transactions can take place. Some traders succumb to the ‘gambling instinct’ that can make them reckless when one trade has turned a profit. It’s important not to fall into this trap, as speculating is NOT gambling.
How to Get Started
There are many different brokering firms on the forex market, so it’s important to choose one that makes you feel comfortable. Don’t hesitate to ask questions about what they offer and how they can help you in terms of finding your feet when you’re starting to trade. Most firms offer free demo accounts where you can practice your trading skills without investing any money of your own.
These are invaluable resources and will show you whether you are cut out for forex trading without you having to put up any capital. It’s also essential that you take advantage of online tools like currency conversion charts, available from firms like Currencies Direct. These charts will allow you to develop your trading strategy and gain a better understanding of the value of different currencies.
Skills You Should Have
If you’re interested in becoming a forex trader, there are certain skills that you should already have or be willing to develop, in order to make your trading career a success. The best traders can react quickly to changes in the market and are good at predicting when the major currencies loose or gain value.
This comes from having a good overall understanding of how the currency market works and how currencies interact with one another on a global scale.
The minutia of how specific businesses operate is not really needed, it’s better to see currency trading as a macroeconomic market, and keep the big picture in mind at all times. Remember that trading decisions should never be driven by emotions, and that structure, pattern and strategy are more important that your ‘feelings’ about a particular trade.
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