On forex, traders earn either on price increases or on their fall. The rules of trading are: buy cheap, sell more expensive. The difference between the buy price and the sell price is the desired profit of the trader.
If you want to learn how to make money on forex, you do not have to be a genius or an excellent analyst, you just need to make an effort.
Before diving into forex trading, you need to have a good knowledge base about financial markets. The forex market has been well researched, so it is not difficult to find the necessary information. Reading special literature, spending time on websites such as Investopedia, watching educational videos are all essential to learning how to trade. It will give you a better idea of how forex trading works.
Start with a demo account
It is better to start trading with a demo account before you get an understanding of the principles of price movement and learn to follow the risks and control emotions.
Brokers offer traders the opportunity to use a demo account. The demo account lets you make practice trades without investing of real funds. In such a way a trader learns how to open positions, as well as to test out strategy.
If all knowledge is successfully acquired, and the strategy shows good results, then you can open a real account. It is worth starting with a small deposit. If you are not yet confident in your abilities, you can open a cent account where the balance is displayed in cents and transactions are also executed in cents. Cent accounts give you the opportunity to practice real trading at minimal cost.
Intuitive trading leads to losses. There are two types of market analysis on forex: technical and fundamental.
The technical analysis is the forecasting of future price movements based on their past behaviour with the help of charts and technical indicators. Technical analysis suggests that the price moves in a certain direction. So, proper recognition of the trend helps to determine the best conditions for entering the market and get income.
Traders who use fundamental analysis follow the political and economic news, as well as various events that may affect the price. The fundamental analysis takes into account such factors as employment and unemployment changes, inflation data, economic growth.
Most brokers offer analytical materials. For example, JustForex makes a daily market overview, the forecast for currency majors and the technical analysis. All information is presented in a convenient way.
Follow money management rules
Forex trading incurs risk. The rules of money management are based on one basic principle – to control and minimize risks arising during trading. One of the reasons that beginners tend to fail is because they do not adhere to money management rules. Here are some of the common rules:
- Use stop orders. Any unexpected news or event can turn the price in one second, and you simply do not have time to respond. Stop loss and Take profit are good “friends” for a trader. They will save deposit at sharp market fluctuations. Additionally, use a trailing stop to control stops to fix the maximum profit.
- Adhere to the optimal ratio of profit and loss. It is recommended to set the stop loss and take profit in the ratio of 1:3.
- Do not overtrade. In other words, do not open too many transactions at the same time.
- Use acceptable risk levels. According to various estimates, the maximum loss a trader can afford is from 1 to 5% of the deposit amount.
- Do not let emotions guide you, do not panic and do not win back. Trade reasonably.
A beginner can make money with forex trading but that is not so simple. It requires patience, experience and certain knowledge. Only then you will succeed on forex.