By Adrian Martin
Are you thinking of jumping into the business of foreign exchange? If so, it is important that you dedicate yourself to learning and developing the effective trading concepts that are available to you. By studying and working hard, you can establish a fairly solid set of trading skills that you can turn to as you get started in the business. In the foreign exchange (forex) market, we buy, sell, and trade world currencies. Although currencies are exchanged for various reasons, the activity is an essential part of the global economy, and it is largely performed for the purpose of tourism, commerce, and trade. As you already know, business today is conducted on a global scale. Because of this, countries worldwide must collaborate with one another and take part in foreign exchange, which is the primary reason why the forex market is the largest financial market in the world.
If you look at past facts and figures related to world currencies, you will see that they were once free to float freely against each other. This action caused the values of various currencies to fluctuate and led to the need for foreign exchange services. By examining today's foreign exchange growth, it is easy to see that commercial and investment banks are conducting much of the exchange activities on behalf of their clients. Because there is no central marketplace for foreign exchange, these institutions, along with other organizational and individual traders, trade one currency against the other electronically via the internet.
Prior to the internet, currency trading was an interbank activity performed on behalf of certain clients. As times changed, banks became more dependent, and they were able to begin trading their own accounts. Later, international business corporations entered the market as well. Today, the internet provides individual traders with easy and functional access to foreign markets, which they trade in with the help of either the banking system or brokers.
The current interbank market consists of various banks and financial institutions that trade with each other around the globe. To do this profitably, these banks must determine how much sovereign risk and credit risk they are willing to accept. In-house auditing processes assist in this area and help banks remain safe in the marketplace. There is also set of industry-imposed laws that are in place to help protect each participating bank. In a marketplace driven by banks around the globe, pricing mechanisms are powered by supply and demand. Because of the supply and demand factor, even if there are massive flows in the market, which sees between $2 and $3 trillion dollars traded a day, not even central banks can affect it for any length of time without the full cooperation of other institutions. In light of this, it's obvious that it is pretty much impossible for an individual trader to influence the price of currency in today's marketplace.
As traders in the field of foreign exchange, we pay very close attention to the constant fluctuation in value that occurs between currencies of various countries. Currencies fluctuate based on supply and demand factors as well as a country's interest rates, trade flows, tourism, geopolitical risk, and overall economic strength. Commercial enterprises that do business in foreign countries are greatly affected by fluctuations in currency values because they often buy and sell goods/services in one country and sell them in others. The foreign exchange market provides a way for these enterprises to reduce risk by fixing the terms of commercial transactions that will take place in the future. Traders around the globe can take part in these future transactions by buying or selling currencies in what is known as the forward market.
There are so many things that a beginner needs to do to implement a successful trading plan and gain the basic skills necessary to become a good trader. First of all, one needs to learn strategies for properly managing and spending trading money. Then, a trader needs to systematically apply these strategies to their trading activities. However, strategy is not all there is to trading. The best traders are those who remain cool and are able to implement their strategies under all sorts of psychological pressures. These pressures are part of the reason trading is often referred to as a game of patience and nerves.
If you want to be a good forex distributor, it is very important to manage your money and capital. Money management is crucial if you want to gain more profits daily over the long-term. Even if you have amazing trading skills and tools at your disposal, you will eventually lose money if your capital management techniques are subpar. Balancing your risk-to-reward ratio is at the heart of money management and should be the goal of all your trading activities. To make a profit, you can't sit back and wait to trade another day, and you definitely should not put all your capital into one trade. These activities are not balanced. Often, the main difference between the novice trader and a professional trader is that the novice typically focuses all of his or her attention on potential profits while the professional focuses on potential losses. The best strategy in this field is to be defensive with your liabilities and capital, and loss should always be on your mind.
Always try to reduce risk before you attempt to maximize your profits. The major flaw found in many traders is that they want so badly to be right every time that they lose sight of the bigger picture. Succeeding in trading is all about how much money you make when you're right relative to how much money you lose when you're wrong. Despite this fact, a large percentage of traders care more about their winning percentage, which really isn't indicative of their success in the business.
It is important to remember that trading in the forex market can be performed anytime and anywhere. As long as you have access to a computer and the internet, you can trade. Today, there are a number of forex brokers that offer practice trading platforms that enable you to trade in real time with real market data without risking any real money. Practicing with these platforms can be a great way to help improve your skills and prepare you to trade with your own capital. You can learn more about brokers that offer these platforms by reading reviews on aggregator sites.
If you aim to trade currencies efficiently and effectively, you need to be knowledgeable about the pros and cons of the forex market. Here are some of them to consider:
- The foreign exchange business is one of the largest dealerships in terms of volume traded in the world. It is also one of the most liquid markets. This liquidity makes it easy to enter and exit a situation in a very short period of time.
- As a result of the liquidity and the speed with which a trader can enter or exit a trade, banks often offer large leverage, which give traders the ability to hold up to some fairly large positions with relatively less money of their own. A lack of thoughtfulness and wisdom in this business can easily wipe out a trader's account and make it difficult for him or her to survive.
- An advantage of the forex business is that it offers a 24-hour trading day, which starts in Australia and ends in New York. The major centers of forex exchange are Sydney, Hong Kong, Singapore, Tokyo, Frankfurt, Paris, London, and New York City.
- While the global interconnectedness of the forex market is advantageous, it also makes it necessary for traders to think big and have an understanding of the economies of various countries. Without understanding the forces that drive currency values worldwide, a trader will have a very difficult time making money in the forex market.
Learn from mistakes
Making mistakes is an inevitable part of life regardless of what one does for a living. The individuals who find the most success are those who use their mistakes as tools for growth and learning. As a trader, you need to learn from every mistake and use what you've learned to improve your future activities.
Excessive trading
Trading too frequently is one of the most destructive mistakes you can make in trading. The easiest way to avoid overtrading is to properly develop sound trading skills and strategies. If you develop and implement the right trading plan, you will be confident, but not too confident, in your trading activities. Over confidence in this business can lead to excessive trading, which is not healthy or wise.
If you are fond of playing James Bond by risking money on a trade, then you are probably not going to last long in this business. When you do lose more than you're comfortable with, you get hurt not only financially but emotionally as well. This emotional pain can give way to frustration and negative energy, which often results in revenge trading. Revenge trading occurs when one is so angered or disappointed by a loss that he or she feels compelled to jump right back into the market to try and win back all the lost money. Unfortunately, this is not the appropriate way to trade, and it will probably only lead to more losses along with a deeper sense of regret, anger, and frustration.
Over thinking
Trading is one profession where you will find a prevalence of over thinking. The activity of trading may seem really simple from the outside, but it's not, and our minds can make it even more complicated than it already is.
Sitting idle and constantly thinking about charts and strategies is one form of over thinking, and doing so will likely lead to overtrading, which we already know is not good. Reading excessively from multiple financial news sources will also cause you to over think and have you running to the computer to make more trades. These and other over-thinking activities are usually not helpful, so avoid them.
Arrogance
Arrogance can push a trader into a heap of losses. Unfortunately, most of us are not aware of our arrogance until it costs us money. Some forex traders are even pushed out of the market because their arrogance compels them to make risky and very costly trades. Don't let this be you. Stay humble and remember that the market will punish arrogance and those who think they can outsmart it.
Surfing trading websites
Although studying trading strategies, systems, and news reports can be an addiction for some traders, this type of information can also be very helpful. To be successful in this business, you must stay on top of the latest figures. You can get the latest information about trading by reading various print resources and visiting sites such as tradingview.com, where you find useful trading charts.
In addition to specific websites providing key information about forex, almost all key players in the media, including CNN, BBC, Forbes, Financial Times, and Wikipedia, now have a special focus on the market as well.
Gambling
As we already discussed, arrogance can lead to gambling with your trades. Gambling in the forex market also results from trading without any clear strategy in mind. Without a sound strategy, many traders gamble with their profits in an attempt to make more, and this does not usually work. In fact, this type of activity is one of the reasons casinos always win. The forex market is not a gamble, and you should not treat it as such. If you do, you will likely find yourself with empty pockets at the end of the day.
Excessive news will blow the fuse
Traders all know that television news channels provide much information regarding forex trade. Unfortunately, a lot of this info is wrong. Often, the people running some these programs are paid to produce false news that disrupts our thoughts and leads us to doubt our instincts. Because of this, it is always advisable to simply avoid watching and listening to the news. A good trader should have faith in his or her skills and act on them alone.
Be educated
It's always incredible to me how many people are willing to risk their money in the market before they've obtained any type of trading education or training. In the field of forex trading, it is important to prepare yourself with ample education. In order to remain successful, you must continue that education and constantly remain up-to-date on the latest currency trends. It is also important to be aware of the various scams out there that can cost you a lot of money. To learn more about these scams, just check review sites like http://forexbonus100.com/category/scam
You may have heard some these tips and suggestions before, but the information I've provided will help you attain success in your pursuits as a forex trader. As we know, there are no shortcuts in any business venture, and this is especially true in the field of trading. Without preparing yourself through hard work and study, the market will punish you. To find success in this arena, you need to study daily and do your research. It's also a good idea to look for a forex broker that offers deposit or other types of bonuses, which can help bolster your funds and give you the capital you need to succeed.
Following the money management techniques mentioned above will help you preserve your funds as long as you focus on balancing your risk-to-reward ratio. Avoid placing to much focus on profits and be sure to always consider potential losses. Additionally, it's important to remain humble in this business and remember that gambling is never a wise decision. Although the forex market can be inhospitable to traders, it can also provide a good living for those with the patience, dedication, and self-discipline needed to succeed.
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About the author: Adrian Martin is a veteran forex trader, specializing in automated systems. You can read more of his work at ForexBonus100.com
