Foreign exchange trading: Basics
Most people think of foreign exchange trading as something they had to worry about and do only if they were going to travel to another country.
They would go to their bank and exchange their countries currency for the currency of the country they were about to travel to. They would also have to withstand the existing currency exchange rate.
In today’s times, many people deal in foreign exchange trading which does not mean just exchanging money. Individuals make investment trades of different currencies around the world. It would be better if novices seek the help of professional brokers such as trade fx asia and tradedax.com
This common investment practice is done by contemplating on the shifting values of currencies between two countries. Some people make trades for profit and some do it for the sport.
Beginners at Foreign Exchange Trading
There is a high rate of failure for beginners in forex trading. Most people will do some research and look at trading with currencies as being an easy way to make money fast. They take on too much too fast and do not understand enough about the logistics of trading. Before they know it, they have lost their whole bundle. Most walk away without even knowing what they did wrong and feel like they were scammed.
It is not a scam. It is set up for those traders who understand the industry. The main goal of a beginner forex trader should be to learn the industry and be able to stay in it long enough to become one of the insiders.
Forex trading leverage is the one thing that seems to get beginners stumped. Leverage will allow a trader to trade with more money then what they have in their account. If a trader has an account with $1000, he could control $2000 in currency on the forex market. This is a 2:1 leverage. A lot of forex brokers will also off as high as a 50:1 leverage which means, if you have $1000, the broker will allow you to control $50,000. This is where new traders fail. They take on to much leverage and are not prepared for the loss.
The smallest movement that a pair of currencies can make is called a pip. Traders trading with a 50:1 is trading with a pip that is worth about $5. With a 70 to 100 pip move in a day, you could be losing around $350. If you make a really bad trade, you could lose your whole investment within 3 days.
Newbies become optimistic and feel they could double their investment in a few days. It is true, but new traders get nervous about the high fluctuation and cannot handle the move. They end up making forex trading mistakes and lose their initial investment and sometime more.
Avoiding Emotional Mistakes
Handling the leverage trap is your first step to learning forex trading. Learning to handle your emotions comes next. Your emotions are the biggest challenge in forex trading. You need to have a strategy when trading in forex. Having the temptation and availability to use leverage is one thing, but when it works against you, your emotion will take over. That’s when mistakes are made. With a plan working for you, your emotions will not get in the way if you stick to your plan. Keep a forex journal on all your trades to see your progress.
The best way to win at forex trading is to keep your head and learn everything you can. The best way is to trade with a practice forex trading demo. Then start out small with your trades and real money. When you are wrong, move on. Do not dwell on the mistakes, but learn from them and do not listen to other people’s postings on Facebook or any online media.