Forex Trading started way back in the ancient times when people exchanged currencies with an added fee. There were money exchangers who used to trade money for a living. This practice carried on all the way to the Medieval times and the early modern period.
Forex trading has always been lucrative because of the arbitrage opportunities. Arbitrage means the opportunities for buying and selling because of price difference in the same asset. In this case it is currency. That is the opportunity. But Forex trading isn’t as simple as just buying and selling. It is a very risky. So what are the ten things about the forex trading?
- Foreign Exchange is the largest and most liquid market in the world.
The Forex market is the largest in the world because of its necessity. When you travel to a country which has one type of currency, the only way to buy anything from there is to exchange currencies. This is an everyday transaction, which is a basic requirement. It’s also extremely liquid, because you have literally spendable money at any point of time. It doesn’t require any sale of another asset to get your cash in hand, like the stock market.
- The Forex Market is not centralized.
The Forex market is one of those rare markets in the world that isn’t run from a centralized exchange. It is run Over the Counter with traders from all over the world trading and in turn affecting the prices of the market. It is also a 24 hour market with trading happening continuously for 5 days a week.
- Forex is risky. Don’t trade with what you cannot lose
When people see opportunities for making a lot of money, they do not hesitate in taking out all their savings and trading with it. This is the biggest mistake somebody can make. The Forex market is extremely risky and the money you put in there to trade, you shouldn’t expect it back or it shouldn’t be money that you cannot do without.
- Forex is a trend game.
Forex trading has a lot to do with the markets and trends in the world. The way currencies behave because of political or economic situations have to be duly noted. The impact of oil in a currency is also huge. The best way to get better at forex is to understand the different trends and the bigger picture of all the components that are involved in pushing a currency up or down. Make sure you do your homework and know when exactly you have to get in and when you have to get out. With stocks you can figure out that the price you are entering is a bit expensive or cheap, similar to that you have to find your entry and exit point for forex trading.
- Adapt and change your Strategies
The Forex market is an extremely dynamic market and you cannot have a single strategy that will always work. You have to adopt your strategy based on the market and the trades that you have got right or wrong.
- Don’t complicate your trading
Using trading strategies you will not understand will just confuse you. Simplicity sometimes is the best option while trading. Many traders and websites would suggest complicated trading strategies that involve a lot of mathematics and calculations involved. If you are not sure of understanding the whole strategy, then the better option would be is to keep your trading strategies straightforward.
- Use Charts and Tools
Information and tools are the back bone of a forex trader. A forex trader needs as much as information as possible to take the right decision. Charts help in providing valuable information that can be used to carry out future trades. Tools help in crunching the numbers and help in making fast trades.
Just like any kind of trading, the emotion should be taken out of the trades. A clear mind is what is required to succeed in trading and it’s even more required for Forex trading. Awareness of the market, trends and the world is important to get good at Forex trading. And I can say as a fair bit of warning, it’s not for everybody.
Do you have the risk appetite to be in the forex market? Let us know in the comments