If you have looked into trading foreign exchange (forex) online and felt that it could be an opportunity to make money, you may be wondering about the best way to get started.
How to Get Education on Forex
To trade effectively, it is essential to receive education in the forex field. Spend some time reading about how forex trading works, executing forex trades, active forex trading times, and risk management, for example. There are many websites, books, and other resources you can take advantage of to learn more about forex trading.
As you may learn over time, nothing beats experience, and if you want to learn forex trading, experience is the best teacher. When you start for the first time, you can open a demo account for forex trading and try out some practical trades. This will give you a solid technical foundation on the mechanisms of executing forex trades, and it will also help you get accustomed to working with a specific trading platform.
Tip: One fundamental thing you may learn through experience – which no amount of research or talking to other traders can teach you – is the value of closing your position and getting out of the market when the reason you entered the trade has been exceeded.
It is very easy for traders to think the market will turn in their favor when they make a trading mistake. You may be surprised by the number of traders who fall into these traps, often becoming angry when the market moves even further against their original trade direction.
Consider this famous statement – and painful truth – from John Maynard Keynes about investing: “The market can stay irrational longer than you can stay solvent.” In other words, it doesn’t do much good to say the market is behaving irrationally and that it will come back – i.e., in the direction of your trade. This is because extreme movements primarily define capital markets.
Using a Mini Forex Account
The downfall of learning forex trading using a demo account alone is that you won’t gain real-world experience of putting your actual money on the line. Trading coaches often recommend opening a mini forex trading account, or an account with a broker that allows you to determine the trading size, thus allowing you to make small trades.
Trading small will allow you to put some money on the line, but it will also expose you to very small losses if you make mistakes or enter losing trades. This will teach you more than anything you can read on a website, book, or forex trading forum, and it will add a completely new angle to anything you learn while trading on a demo account.
Learn the Currencies You Trade
To get started, you will also need to understand what you are trading. New traders tend to jump in and start trading anything that seems to be moving. They may use high leverage and trade randomly in both directions, which often leads to losing money.
Understanding the currencies you buy and sell can have a significant impact on your success. For example, a currency may rebound after a significant decline. This might prompt new traders to attempt to “catch the bottom.”
The reason for the currency’s decline might be poor employment reports for several months in that country. Would you buy something like that? Probably not. This is an example of why there is a need to know and understand what you are buying and selling.
Forex trading is great because you can use leverage, and there are many different currency pairs you can trade. But that doesn’t mean you need to trade all of them.
Tip:
The best way to do this is to choose a few currencies that are not related to each other and focus on them. Choosing a few currencies will allow you to easily follow the economic news of the concerned countries. You will also be able to gain an understanding of the rhythms of those currencies.
After you have traded for a while on a small real account and have an idea of what you are doing, you can deposit more money and increase your capital.
Knowing what you are doing should translate into getting rid of your bad habits, understanding the market and trading strategies, and managing your emotions. If you are able to do those things, you can be successful in forex trading.
Risk and Emotion Management
Risk management and managing your emotions go hand in hand. When people feel greed or fear or any other emotion, they may be more prone to making risky mistakes. This is what often leads to failure.
When you look at a trading chart, approach it with a logical mindset that only sees the existence or non-existence of potential success. It shouldn’t be a matter of excitement.
If pulling the trigger on a trade makes you feel emotional in any way, you should reassess why you are doing it and try to regain an objective mindset.
Frequently Asked Questions (FAQs)
How much money do you need to start forex trading?
The minimum funding requirements vary by broker, but you may be able to start trading with at least $100. However, it is better to save more money to give yourself greater flexibility in managing losses.
What should you study in college to learn forex trading?
Many traders study finance, economics, and business in college. Computer science and mathematics can also help you work towards becoming a trader.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy and reliability of our content.
Investor.gov. “Foreign Currency Exchange (Forex) Trading for Individual Investors.”
TD Ameritrade. “What Is Leverage in Forex Trading?”
Fidelity. “Markets, Emotions and You.”
Source: https://www.thebalancemoney.com/best-way-to-learn-forex-trading-1345161
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