For many people, the concept of foreign exchange trading is an interesting one. There are so many financial markets to look into and it can become overwhelming to most of us. The question then becomes, is trading forex worth it? What are the benefits of being involved in the markets? Are there benefits beyond the obvious profits available with the correct strategies?
To me, the answer is yes. Traders gain many things out of foreign exchange markets and their reasoning can differ from time to time. The primary reason trading forex is the profit can be made if you make the right decisions.
Some traders have a lot of experience in reading financial and economic trends. If traders can forecast major economic events, they can have positions in place to take advantage in the marketplace. Trading can also be a very exciting hobby to many, where knowledge and market involvement are big personal interests. Some decide to trade small amounts to enjoy the hobby of trading without taking on too much personal risk. Others, who are able to discover strategies with consistent levels of success, are able to make a career out of foreign exchange trading. There are also some who like to trade from time to time, particularly when the market is in unique or less common conditions.
Whichever group you fall into, there are a few things to keep in mind to maximise your trading experience.
1) Use a local broker
2) Use a regulated broker
3) Be aware of scams and be serious with security
4) Understand products that you are trading
5) Stay up to date with the global economy and its movements
6) Look into the lessons of the past
7) Be open-minded
8) Don’t overload
9) Control your risk
10) Choose your timescale
Use a Local Broker
When choosing a company to begin trading forex with, it is best to use a local firm. A company which operates in the same country as you will mean that they are more in touch with the local market. This means they will likely be able to match the expectations you have. The client service is likelier to be of higher quality, with a service team more willing to take the time to explain answers to any questions. Any broker with a local office will also be more than happy to meet you physically in person to discuss your needs as a trader. Processes like applying for an account, installing software and placing a trade become easier when dealing with a local firm. These practical things become more difficult with a firm on the other side of the world.
Use a regulated broker
It is very important to choose to trade with a regulated broker. It is even better if it is one in a country that has stringent financial laws and a solid fiscal reputation. Regulated firms must follow many conditions and regulations. Most of these rules are designed to protect client funds.
If a company isn’t regulated, they are open to treat client funds as they wish. This means there is no guarantee that your funds are safe. Many budding forex traders have been scammed by companies that look legitimate on the internet. Unfortunately, they have been unable to withdraw funds or get in contact with the company later on.
Be Wary of Security Concerns
Once you are trading, take serious care with the security surrounding your trading account. Many scammers on the internet understand that there are large amounts of funds sitting in trading accounts. These funds become a big target to them. Treat your account information and password the same way as your bank account access, keep it secure and don’t share it. A common scam, both with traders and others online, are romance scams. Scammers pretend to make an emotional connection with people. This is achieved through messaging them and trying to pry account information. Don’t become another victim to an online scammer.
Do an adequate amount of research into the products you are intending to trade. A well-rounded understanding does not guarantee success but it will help you become more assured in your decision making. This will save you in the long run. There is no use in assuming you are an expert in a certain currency pair and becoming complacent. Always keep reading books, researching events and engaging in financial markets. You might come across a small piece of information that helps your trading success in the future. Also, look to understand the amounts you are trading, often referred to as lots. Think about your trading goals and make sure the size of your trades matches your intentions.
Stay Up to Date
Having an idea of the global economy on a day to day basis helps in enjoying your forex trading. A level of excitement can be found from breaking news occurring and the trickle on effects it will have on the market. Often even non-financial news can have a large effect on the global markets. The best traders have a source of news they can trust that they check consistently throughout the day. Often news sources can be tailored to your needs and notifications can be specified to your needs. Currently, there is a wealth of information available through the internet to take advantage of. For me, particularly good options include CNBC (free) and Bloomberg (subscription).
Learn from the Past
Making the most out of your trading should involve being mindful of events of the past. The global economy tends to be quite cyclical and good traders remain mindful of this. A major correction usually occurs in global markets once every 10 or 15 years, with the most recent in 2008. If such an event materialises, the best traders will often close out positions to limit losses. This can be better than waiting for things to return to ‘normal’.
To enhance your trading experience, it is best to remain open-minded about changes in the marketplace. Just because a certain currency pair has behaved in a certain way does not guarantee it will act the same in the days, months and years ahead. By being open to new information and not falling into assumptions, your trading is more likely to end up successful.
As traders, it is easy to become invested in a multitude of different products and begin trading them. Yet, it is easy to overload yourself, both with too many trades and involvement in too many types of products. It is better to have a good idea of all positions you have open as a trader; being overwhelmed when trades need to be closed quickly should be avoided. Choose up to five or six products to trade with at most. This will ensure that you don’t become confused with which trade is which. It is always easy to increase the number of products as your experience increases.
Control Your Risk
Depending on your strategy, make sure your risk appetite matches the trades you are entering. Decide whether the positions you have taken will move the same way if an event occurs. For example, the NZD/USD pair is different from the GBP/USD pair. Yet, both positions will have exposure to events occurring in relation to the US economy. Understanding these principles will help your portfolio work for you, rather than against you. Many traders choose to use products with differing characteristics to hedge against large changes in the market.
Choose Your Timescale
Every trader should know the timescale of their trading goals. Would you like to slowly but surely hold positions and move in and out for small gains and losses with a long-term view? Have you spotted a good time to trade in the market and want to take advantage? Your trading choices should match your expected timing. You can control this by adjusting the size of your positions. Many brokers allow you to trade micro-lots, equivalent to a $1,000 rather than full lots which are $100,000 each. Understanding the value of lots and micro-lots will help you control your timescale when trading.
In summary, for me, trading is certainly worth it. I enjoy keeping up with the global world of finance and its movements. Trading gives me an opportunity to be involved and take advantage of movements in the market that I feel will happen soon. Many things related to the financial world in one way or another. This excites me when thinking about which positions I should take in the market. Although some people can trade for a career, I enjoy the time I spend trading as a hobby. It adds excitement, builds on my financial knowledge and provides rewards if I am proven right in my thoughts. If in any way, like me, you are interested in the financial world around us, then trading is certainly worthwhile.
Matt Larsen - Accounts Executive of Rockfort Markets