Forex trading is a little bit like driving a race car. You want to go fast enough that you’re going to be in the pack as you turn for the home stretch, but you don’t want to get there so fast that you land up becoming part of a barrier wall. The relative volatility of the forex currency pair that you want to trade must be taken into consideration. The relative volatility of the regional market that you launch your forex trade in must also be considered. How many contracts you are going to start with must be factored in. How high of a leverage ratio you’re going to use is important. Whether or not the economic calendar is crowded with central bank announcements is another worry. Believe it or not, what day of the week it is can become quite important (as liquidity has a tendency to dry up the closer the weekend draws near).
The internet is filled with excellent forex-related information and news. Before you start forex trading, avail yourself.
The Main Risks To Consider Before Engaging In Forex Trading
If you’re contemplating getting involved in forex trading, you need to realise that there are a couple of risks involved, some of which are not totally apparent at the beginning. For instance, to be successful in forex, you need to know a lot about some very different things (e. g., central bank monetary policies, binary option barriers, oscillators, momentum indicators and financial gearing ratios). Depending upon your background, this can take up a lot of your spare time. Forex trading could also consume a lot of your time, unless you opt for long-term forex trend position trading. Your spouse, children or pet may not appreciate this lifestyle change. Finally, the highly leveraged nature of forex trading could throw you for a loop.
Putting In The Research Before You Trade Forex
For what central banks are up to, visit the monetary policy sections of their websites. They’re pretty upfront about their trading strategies. For what commercial banks, like Barclays or Westpac, are forecasting or recommending, visit their websites too (or go to “efxnews.com”). Reuters and Bloomberg have excellent forex-related stories; check out their “market data” sections. Former forex bank dealers also have websites and are willing to share their trading insights with anyone who visits them. For Australian dollar or British pound-related information, go to “fxww.com”; for information on the euro or US dollar, visit “forexlive.com”. In addition, any “demo account”, that you might be using, should have a forex trading commentary section. Some are worthy of being read daily.
Strategies Forex Traders Use To Keep Risks Low
Before you start trading any currency pair, go into the charting section of your trading platform and use an “Average True Range” (“ATR”) indicator, on a daily chart, to find out how volatile your pair has been over the last 24 hours. If the numbers are pushing the high end of the spectrum, don’t trade or find another pair to trade. Dial down the amount of leverage you’re using. If you’re a short-term trader, grit your teeth and use a ratio of 50:1 or lower. If you’re a long-term trader, trade with a ratio of 30:1 or lower. Your profitability per trade may suffer, but your stop losses will probably never get hit. Finally, never trade through a major economic announcement.