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What you need to know before starting currency trading

  • June 21, 2021

If you're reading this, I'm earning money. Thanks for helping to feed my family. Please see our disclosure for more information. Also, any advice provided is for informational purposes only. I'm not a CPA, lawyer, or doctor, although my parents wanted me to be all three. So, talk to a professional before acting on anything you read below.

 

Trading the markets is not easy, but with the right education, practice, and strategy, success can be found. Among all the financial markets available, many traders turn to the Forex market (currency market) to start investing money. 

Forex is a market that you can trade around the clock, as it is open 24/5 from Sunday to Friday. You can easily start trading the Forex market with a couple of hundred dollars, thanks to margin trading, and a simple device connected to the Internet. Finally, its also the largest and most liquid market, meaning its easier to enter and exit the market. In April 2019, the Forex or FX market reached $6.6 trillion transactions per day (from $5.1 trillion in April 2016)!

So, is currency trading right for you? Here are a few things to consider.

Making money trading currencies takes time

If you decide to trade the currency market, you need to be aware that it might take time to make money - especially if you’re a newbie in the trading world. You will first need to learn how trading works and what makes currency prices move up and down. Then, you will need to determine the kind of strategy you will adopt and which currencies or trading pairs you will focus your trading on. 

It’s also important to pick the way you’re going to trade currencies - which financial products you will use, like CFDs (Contracts for Differences), futures, options, and spread betting for instance. Finally, you need to pick the right broker and learn how its platform works. You need to be patient, dedicated and committed to succeed in trading.

You will have to learn how the markets work

As Warren Buffet used to say: "Risk comes from not knowing what you are doing". That’s why it’s essential to take time to educate yourself and gain the knowledge required to be able to trade the Forex market correctly. Learning how to trade is, therefore, necessary to know what you are doing and avoid taking unnecessary risks.

You must determine the kind of trader you are

Before you start trading the markets, you need to think about your personality to determine which kind of trader you are. In addition to your personality, you also need to take into account your risk tolerance. Ask yourself some questions like "is winning extremely important to you?", "what would you do if you were giving $500?”, and "do you like to take risks?".

You need to have a trading plan

Wanting to trade currencies is great, but you’ll need to have a sound trading plan before you go ahead and start trading. A trading plan needs to describe the way you will enter and exit the markets, and how you will manage your positions.


You need to determine how you will analyze the markets (technical analysis vs. fundamental analysis) and which kind of trading style you will adopt depending on your personality, your goals, your trading capital, as well as your financial horizon. Depending on your risk tolerance, your trading plan should also include risk and money management rules to better control your overall risk and protect your capital.

Bottom-Line

While it might take time to learn how to trade the Forex market and pick the right trading strategy for your trader’s profile, the Forex market allows you to get exposure to international markets and trade whenever you are available, giving you a chance to make your savings grow.

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