The Workings of Forex Trading Demystified

There was a time when the phrase foreign exchange only made sense when people had to exchange currency after they arrived in a foreign country. It was something of a necessity. However, with the passage of time, and the sophistication of trade, the phrase has taken on a whole new meaning. It refers to a fully developed trading niche in which adults keep gazing at screens, predicting the performance of currencies and guessing what the trade holds for them in terms of profits. Indeed, foreign exchange trading has evolved fast in the recent day. Activity in forex trading is just as vibrant as what ensues on stocks markets. Forex trading can still be done as a passive hobby with a little gain on the side or as a full-time business engagement. For purposes of the latter, it is important to note that foreign exchange trade requires skill and the patience to learn and the help of a good forex broker like trade111.com or trade dax.

 

Forex trading for Beginners

It is easy to conclude that forex trading is an easy venture. However, such a temptation soon flies out the window when you learn that it is one of the areas of trade that has no mercy for beginners. In fact, forex trading has about 96{06173b6d57ad0a1e50c000a24262bcc84a4e90fb2979bce0d566e830beb03e51} failure among those trying their hand at it for the first time. Interestingly, some traders are equipped with such knowledge but still join with a defiant attitude, with a belief that they are better than their predecessors. When reality dawns on them, wisdom seems to take leave. Such traders will easily blame the trade as a scam or a hoax. The truth is that forex trade is not a venture for the faint-hearted. It is meant for the shrewd type. It is business for insiders who have mastered the trade and the tricks therein. It isn’t a scam.

Since you now know that it is not a scam but you could still lose money, you are better placed to play your cards safely. The best way for beginners is to take precaution not to be overzealous and expose to great risk. Take your time, make a few small losses and gain the experience with the gurus. Once you have mastered what the experienced traders do to make more money, you will be on your way to becoming an expert too.

One of the traps that beginners fall into in foreign exchange trading is choosing to go with leverage trading. In this form of trading, a trader is allowed to operate with more cash than what they hold in their account. So a 2:1 trading allows you to control twice the amount you have in your account. Some platforms offer up to 50:1 leverage trading. The implication is that each of the pips is worth $5. Given a daily move of 70 to 100 pips, on average, you are guaranteed to take home an average loss of $350. In about 3 days, all things held constant, your $ 1000 will be on someone else’s account.

So, while 50:1 is a temptation; in fact, the whole idea of leveraging is a bad temptation, beginners tend to fall for it more because there is a promise of making big money. While it is possible, the odds of such leveraging are always against the trader.

 

Steer Away From Classic Mistakes

So, Lesson number one for beginner traders is to avoid being tempted. The second and important aspect of forex trading that a beginner must remember is that there is a need to hold a tight rein on one’s emotions. Impulse buying can be extremely costly. You must also be prepared to make losses. It is not business for the faint-hearted. When you fail, just remember that you are not alone.

It is prudent to develop a trading plan and also keep a diary of your forex trading activity. Stick to your plan and learn from the trends in your diary as you record your progress. It is possible to make a profit from forex trading. You must be prepared to make mistakes and learn, though. A hand at forex trading demos, first, could give you a feel of the real thing before venturing into the deep end.