6 Facts You Need To Know About Forex Trading

6 Facts You Need To Know About Forex Trading

Forex has become one of the most attractive forms of investing for the retail side of the house. With the proliferation of the internet and the convenience of modern trading platforms, more and more people are showing their interest in becoming Forex traders.

Such an increase in interest has also popularized several misconceptions regarding this form of trading. Because of that, we’ve put together a list of 6 facts you need to know about Forex trading and how to be successful at it.

It’s Much More Complicated Than It Seems

Right off the bat, the first thing you need to realize about Forex trading is that it’s much more complicated than you think. Just because it’s easy to get started doesn’t mean that Forex trading is something you can master within a day. It might take months before you become proficient enough to make Forex trading your career, or even your side business.

The reason why Forex trading is so complicated boils down to the number of factors you need to predict. Technical analysis is something that’s common for all forms of trading, including Forex. Mastering technical analysis takes time and effort. Don’t expect it to be easy.

There Are Regulations to Adhere to

Forex is a form of trading with financial instruments. As such, it’s highly regulated by both individual countries and regional regulatory bodies. If you’re doing Forex trading in South Africa, you’ll be governed by the regulatory body of South Africa. That’s not a bad thing either. In fact, trading using brokers who are certified by the governing regulatory bodies means that you’re protected by various standards.

Online Forex trading is ripe grounds for scams and malversations. The first thing you do when looking to start trading on Forex markets is to find a trader that is certified by one of the regulatory bodies. That’s the bare minimum you need to do on your part to make sure that you’re safe.

Losses Happen

6 Facts You Need To Know About Forex Trading

You can’t participate in any financial markets where commodities or financial instruments are being traded, without suffering losses. Taking a hit on your trades is just part of the game. Those who are learning about trading and technical analysis call that “paying the tuition”.

It’s how you deal with losses that will define your trading career. Learning from bad decisions, or risky trades is the only way to get rid of bad habits. In a way, losses are there to teach you what not to do. Naturally, how bad these losses will depend solely on how far you’re willing to go with your trades.

The more cautious you are in the beginning, the fewer severe hits you’ll have.

As you’ll find out a bit later down in this guide, losses are also a great way to keep yourself in check. It’s healthy to take a hit from time to time, especially if you’ve linked several successful trades in a row. That way you’ll always have your feet firmly planted on the ground.

Never Go All-In

Going all-in on trades, especially as a beginner, is a great way to be liquidated within days of getting into Forex. Limiting risk and exposure is one of the main postulates of trading. If you consider that you’ll be making mistakes, in the beginning, it’s a good idea to limit your exposure to 10% of your overall budget on a single trade. That way, even if you take a hit, it won’t be debilitating.

The reason why so many newbies fall for this error is simple — the temptation of major winnings is too big for some people. However, even if you’re scalping, Forex is a long game. It’s not a sprint, it’s a marathon.

Taking things slow and limiting your exposure will ensure that you’ll grow your stack. At one point, investing 10% of your entire account will bring you massive gains given that you do everything right. This is something that applies to all kinds of investing as well. Once you reach certain figures, Forex becomes a numbers game.

Leveraging Is A Double-Edged Sword

If you’ve researched Forex at all, you’ve probably heard of leveraging. Leveraging means that you’re using funds that aren’t yours, in order to add a multiplier to your gains. However, just as leveraging can bring you a lot of money, it can also liquidate you. When you leverage a position, any volatility in that pair is being multiplied.

That being said, leveraging is an important tool used by most Forex traders. The key is learning how to use it responsibly and in your favor.

Success Causes Complacency

Being a successful Forex trader can be a dangerous thing, as counterintuitive as that sounds. Stacking several successful trades, especially in the early stages of your trading career, can lead you to become cocky with your strategy. It’s extremely easy to develop a false sense of security and invulnerability.

The good thing is that you can recognize this effect on time and do something about it. The worst thing that can happen is entering a risky position with high exposure, and taking a massive hit. Either way, you’ll learn from that experience as well.

One thing that rings true for most of the items on this list is that you don’t have to make mistakes. There is plenty of knowledge and recorded experience online you can use to learn from. Plenty of people have made mistakes so you don’t have to. However, unless you’re taking a well-known class in Forex trading, no one will feed you this information on their own. You’ll have to get out there and look for it if you really want to learn from it.

Trade the Right Way

Some of the things we’ve discussed above might come off as scary. However, the point of this guide wasn’t to dissuade you from getting involved in Forex trading, but rather to arm you with information that will allow you to do so responsibly. If you plan on making Forex trading one of your income streams, or the main income stream, you need to be aware of all of the facts.

 

 

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