Forex (FX) is the term used for foreign exchange. Put simply, trading in currencies is referred to as currency trading or forex trading. It is the exchange of one currency for the other, which could be for speculative purposes, export/import settlement or maintaining a country’s foreign exchange reserve.

Currency trading has been an age-old practice for merchants who needed to exchange goods for money, since way long before globalisation. Approximately, a century after the first exchange opened up in Philadelphia, the gold standard was introduced in the USA in 1870 to ensure that there is a correct base for pegging the USD. This was to make it immune to market fluctuations and government policy changes, which could hardly be sustained. The currency market has much evolved, especially since its digitisation in 1996. Currently, forex trading is clearer and more convenient compared to the time before digitisation.

In a globalised world, where countries trade with each other more than ever and people travel to different parts of the world quite frequently, forex market and trading is a common term. Forex refers to a decentralised global market that facilitates the trading of currencies. It is an over-the-counter market wherein trading is carried out directly between two or more parties without the active supervision of an exchange. The market also helps in determining foreign exchange rates for every currency. It is a highly volatile market with daily trading volumes typically running in trillions of dollars in a day. The market operates for 24 hours each day except from weekends.

How to know what to invest in though? There is no correct answer to this question. Forex trading requires consistent discipline and practice in order for you to become a successful and confident trader. The tips below will help you prepare for your trading journey – the rest is down to you!

• Use a reliable broker.
• Look into long-term investments.
• Consider major currencies.
• Explore ETFs or mutual funds, instead of individual currencies.
• Keep in mind the leveraged currency investments.

This blog article will help the readers understand the concept of trading forex with caution along with how to manage risks and increase your earning potential.

Why trade forex?

To start with, the forex market is the most liquid market worldwide. Liquidity in forex refers to how easily an asset can be bought or sold. Since the market is heavily active on a daily basis, there are always many opportunities and so transactions take place easily. In other words, with such trading activity, there is high supply and demand for an asset, so finding a buyer or seller is very easy. On the contrary, with fewer market participants, like when trading commodities, there is low liquidity and so on.

Forex trading liquidity is of high importance for a number of other reasons as well, but most importantly because it affects how fast traders can open and close a position. Liquid markets, therefore, are also associated with lower risk because there is almost always someone willing to buy or sell without having to cut the price of the asset to make it more appealing or increase the amount to secure the asset they want to hold. As a result, and due to the favourable market conditions, a large number of speculators and investors are attracted to the forex market.

Moreover, a product’s liquidity determines the spreads that a leveraged trading broker can provide. The highest price a buyer is willing to pay and the lowest price a seller is willing to accept move together. This means that the bid-ask spread will tighten.
As brokers take their prices from the underlying market, a lower bid-ask spread will lead to lower spreads offered on the trading platform. When a market has low liquidity, there’s usually wider spread.

All in all, the market is easily accessible to both beginners and professionals and has flexible trading hours. This means that traders can trade anywhere, anytime around the globe, unlike when trading futures. Furthermore, the market offers numerous instruments to invest in and multiple opportunities to generate some online revenue. However, there are always risks involved.

How to trade in a cautious way?

Start out by developing your forex trading strategy. There are some forex trading strategies commonly used by many traders in different time frames and market conditions that can help trade in a cautious way.

Day trading
This is commonly chosen by individual traders and major brokers with high volumes. Irrespective of what positions you enter or whether you buy or sell, all the trades need to be closed in a single day, and the net of all transactions is your profit for the day. The aim is to maximise this netting by making all the small trades profitable, even the insignificant ones.

Scalping
This is similar to day trading, but the main aim is to gain enough profit from every trade and not get into multiple transactions every day. These are very short-term trades and could be closed whenever they capture a few pips.

Swing Trading
This strategy benefits from momentum in the market and grabs a decent movement in price through short term trading.

Trend Trading
This type of trading usually is for a long-term cycle based on fundamental analysis of the currency pair and geopolitical reasons backing it and intends to invest in the currency for future prospects.

How to maximize potential profits with forex trading?

Forex trading requires more than you would have initially suspected. It takes time and money of course, but also requires a lot of thinking and knowledge, while it very often elicits emotional responses that most traders try to control and limit. It also entails discipline and organisation and very often affects, influences and shapes your daily routine and life as a whole. If you get involved in trading properly, you will soon realise that it is not a mere hobby, but something more. For this reason, many traders have devised various plans and strategies to cope with the demands of trading.

Forex trading starts with discipline
In fact, it takes a lot of discipline and control to start with. It takes responsibility, consistency, and proper money management. Also, for many traders, it means waking up early. Even if you don’t find it attractive, if you are going to be a successful trader, you might need to sacrifice some time. At least this is what some traders recommend. However, this depends on you and your lifestyle and sacrifices have their limitations, of course.

Exercise and eat healthily
Yes, trading is influenced by your routine and your mood. If you feel positive and your brain is properly nourished, then you will be prepared to make proper and rational decisions that are not affected by a tired mind. Mental clarity is key and this is important if you want to cultivate a healthy mind and body and, consequently a healthy powerful attitude. Every little helps, and you will see an immense difference if you cut down processed foods and unnecessary sugary drinks and snacks.

Cultivate patience and reduce stress
Again, how is this related to trading? You will find that trading can be a lonely and isolating activity, that can generate enormous stress and pressure. Keeping a clear mind, eliminating stress and learning to keep calm and be patient are essential in your trading. Many traders take up meditation or yoga, they exercise at least three times a week and try and keep a clear mind. By doing so, many have noticed that they are more positive, and their trading has more discipline.

Forex trading: Focus on one strategy
Doing many things at a time does not really help and creates confusion. Multi-tasking is not ideal when you are trading. Instead, many traders have noted that it works for them when they focus on one strategy, a limited number of markets and eliminate all other distractions. When it comes to trading, most professional traders reduce distractions such as their mobile, social media and games, and choose to focus on what they are doing, whether it is trading, learning about a new strategy and so on.

Overall, a successful trading mindset takes time and patience. Many traders have learned through the years what works best for them and have tried to cultivate a routine that suits their lifestyle. If you are just starting out, taking the time to establish a healthy routine will benefit both yourself but also your trading, and it is worth beginning with rules and goals rather than jumping in without a life vest. Happy trading!

Manage your risks when trading forex

If you’re trying forex trading for the first time, it’s important to keep in mind some trading tips before you start trading. The journey to becoming a confident forex trader involves hard work, patience and practice. Successful traders improve their skills through practice and discipline and also perform self-analysis to see what drives their trades.

Before you set out on any journey, it is important to create an action plan and bear in mind the following questions:
What do you want to achieve from trading?
What trading strategy appeals most to you?
It is essential to have a clear goal in mind and to ensure your trading method can achieve these goals. Every trading style has a different risk profile, which requires a certain attitude and approach to trade successfully.

Start with a small investment
You shouldn’t enter a trade until you plan it out well. When you do, invest a small amount until you gain confidence. When you start trading, you will lose money on some trades and make money on others. Learn from every step you take, be patient and take your time.

Educate yourself
It’s important to learn as much as you can about the forex market. Before risking real money, make sure you study the different currency pairs and understand what makes their prices go up or down.

Create a plan and stick to the plan
Creating a trading plan is an important element of successful trading. A trading plan can help you take the right direction as it provides a framework to measure your trading performance, which you’ll be able to monitor continually. In this way, you can trade with less emotion and stress.

Practice
Practice is a key part of your forex trading journey. There are many ways to practice without having to risk real money. You can do this through demo accounts on trading platforms that allow you to trade with virtual money. With a demo account, you can put your trading plan to the test in real-market conditions. You should learn how to use the features of a trading platform before you start trading on it.

Stop-Loss Orders
Successful trading is more about avoiding losses than making profits. This should be your main objective in any type of trading. Risk can be reduced through stop-loss orders, which can be used to exit the position at a specific exchange rate. Stop-loss orders are an important forex risk management tool as they can help traders cap their risk per trade, preventing significant losses.

Keep your emotions under control
Remember to keep your emotions under control when trading. Make sure you make informed, rational, and unemotional decisions. Risk management will help you to identify potential risks and avoid them.

Keep a journal
Keep a record of your trading activity in a journal. Analyse the trades and the patterns as well as the fundamentals that influence your decisions. Always ask yourself questions about your decisions: Why did I make that trade? Why did I choose that currency pair? It’s important to learn from your mistakes and it is easier to do this if you have a written record.

DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication