It’s often said that forex trading is a sweet science, with traders taking a multitude of factors into consideration before executing trades. While it is true that successfully trading currencies in the foreign exchange market will require a great deal of research and effort, it’s also true that every trader begins with nominal knowledge of the profession and gradually builds their skill level with time. With that said, if you’re still at the introductory stage and are struggling to simplify the learning curve, you may want to start by researching the following four fundamental aspects of forex trading first:
1. Learning the Best Currency Pairs
Although the best currency pairs to trade will vary depending on current conditions, the most commonly traded pairs with the highest liquidity include:
Of course, there are many other pairs to consider, but starting with the pairs listed above is a great way for a novice forex trader to learn the ins and outs of the market. Once you have a solid understanding of how to trade the most popular pairs, you can then begin researching less common alternatives to discover unconventional and frequently overlooked opportunities in currency trading.
2. Choosing an Ideal Platform
The platform you use to trade forex will directly impact your profits due to the transaction costs and other fees charged by the broker. Some things to consider include the minimum initial deposit, leverage, margin, commissions, spreads, and accepted deposit/withdrawal methods. It’s also a good idea to choose a broker site that is known for providing responsive customer service as well as included market analysis tools.
3. Practising Risk Management
Preserving trading capital and mitigating risk are two important measures for forex traders. Researching risk management rules and guidelines will help you stay safely within a predesignated range of minimal capital, essentially placing a stop on your losses before they compound out of control. Keeping an account well-funded is the key to being able to fully capitalise on optimal trading opportunities as they arise. Thus, it’s best to never take on too much risk in any single investment, instead, hedging the risks across multiple currency trades.
4. Technical Analysis
Last but certainly not least, it’s imperative that you have a solid understanding of the technical analysis behind making an informed forex trade. The practices will vary depending on the software/site you’re using, so there are no shortcuts here. However, it should be noted that more complex analysis doesn’t always lead to better results. In fact, some of the most successful traders are those that learn to operate based on several key indicators rather than a gauntlet of charts and graphs.
Becoming a Well-Rounded Forex Trader
Although you’ll still have plenty of learning left to do, by covering each of the above aspects individually, you can be sure that you’re basing your efforts on a strong understanding of the fundamentals. Thus, it’s best to use this guide as a checklist to make sure you’re highly knowledgeable about the basics before proceeding.