Many people get started with forex trading for the wrong reason. They believe that is a way for them to get rich quick. As with any legitimate trading avenue, however, this is not the case. The short answer to whether a beginner can make money with forex would be ‘yes’.
This doesn’t mean that every new trader will make money or that it will be an easy process. Forex is an industry that is advantageous to individuals who understand the specifics and inner workings of it. On that note, let’s take a look at what it takes for a beginner trader to make money with forex:
1) Mastering the Basics of Forex Trading
To be a good forex trader, you first need to equip yourself with the necessary tools. Here is what you need to know about the fundamentals of forex trading:
A Good Broker Is Essential
The key to starting off with an advantage is to choose the broker that is right for you. It is best to stick with a broker that is licensed by the Futures Commission Merchant and regulated by the Commodity Futures Trading Commission. Depending on where you live, you may need to find a broker that is affiliated with an authoritative agency that pertinent to the region.
The other thing to consider when looking for a broker is low spreads. Spreads are the difference between the purchase price and selling price of the currency. They are calculated as pips. In certain trading industries, brokers make their money via commissions. With forex, however, the brokers rely on spreads.
Due to the fractional price deviations with forex trading, traders need their brokers to offer them leverage. You should decide on a broker that gives you the option of either low or high leverage. Depending on the situation, you may need to make use of either of these.
Many brokers need to borrow large sums of money to equip their traders with leverage. They acquire these loans from banks and other large lending organizations. You should look for brokers that are backed by reputable banks to minimize fallout in the future.
Adopting a Strategy
The strategies in forex trading are based on either fundamental analysis or technical analysis. Fundamental analysis typically depends on news reports regarding the various factors impacting currency. Technical analysis, on the other hand, is about identifying the various price trends in the market. Traders can choose to use a strategy that consists solely of these types of analysis or they use one that is a combination of the two. In the end, it is about finding and using a strategy that is in accordance with your trading style.
2) How Beginners Can Make Money with Forex
Now that you know what is needed, how can you make money with forex as a beginner? Here are a few guidelines:
Start with a Demo Account
Most brokers offer traders the opportunity to use a demo account, at least for a limited period of time. A demo account lets you make practice trades without actually investing any real money. This helps you to learn how trades are made and also gives you an opportunity to test out your strategy. All of this prepares you to make your first trade and improves the chance of you being successful.
When you don’t have experience at your disposal, you need to utilize the next best thing: knowledge. Fortunately, the forex market has been well researched along with the many strategies that you can use. Reading books, joining forums, and asking questions are all essential to learning how to trade better. It will give you a better idea of just how this form of trading works.
Trade with the Trend
When you are just getting started, your greatest advantage will be to trade with the trend. Trading against the trade could offer better profits but tends to be a riskier option. This is why you should follow the trend unless you have strong evidence to go against it.
3) Forex Trading Mistakes to Avoid
One of the reasons that beginner traders tend to fail is because they make too many mistakes and are unable to recover from them. Here are some of the common ones to avoid:
- Not being patient and playing the long game when necessary
- Making too-large trades
- Letting emotion cloud your trades
- Focusing on making profit rather than preventing losses
- Trying to get rich quick
A beginner can make money with forex but you need to understand that it is not simple. It requires study, effort, and most important of all, patience. Only then will you begin to make profits.