Forex trading is also called FX trading or currency trading. It refers to the trade of international currency pairs by purchasing or selling them with one another. The ultimate goal of forex trading is to buy one currency with another, hoping that the prices would improve. This means that traders expect the value of the currency purchased to rise with respect to the one sold. Visit trading currency marketForex market is the largest financial market around the world which involves various participants such as investors, speculators, and corporates who carry out trades in different countries. Contrary to various other financial markets, the Forex markets don’t carry out operations from a central location but they do so through an electronic network of corporations, banks, and individuals, who exchange different currencies. This makes it feasible for the forex markets to operate 24 hours round the clock in different time zones and financial centers for five days a week. Below are some trading tips that will help you earn money through forex trade:
1. Accept risk & volatility
Leading forex traders are well aware that volatility and risk are signs of the forex market’s profit potential. No forex trading method can help you reap profits without any risks. The more you risk the better chances there are for earning. Most traders do not assess the risks right and are keen on mitigating them to an extent that it eliminates any room for profit.
Take the case of a day, or intra-day trader, who is trading in a particular session with a tight stop. When you want to earn big bucks you must allow your trade some room and have a stop that takes market volatility into consideration. You must also avoid trailing your stop too soon only to leave it behind so it is not halted by the volatile market trends in the long run.
Market volatility is unpredictable and all your efforts are likely to go in vain. Instead, focus on the long run and try to take calculated risks that can help you earn better profits.
2. Trade infrequently
Trading frequency is often misunderstood and there is a segment of trailers who believe that they need to always be in the market or they might miss a great opportunity. The truth is, there is no connection between the money you make and what your trading frequency is. Since the solid market moves in forex trading are present only a few times per year, it is best to trade infrequently.
3. Money Management
Seeing out the better opportunities to make monumental gains is where money management comes into the picture. You don’t take calculated risks just because you have to but because your actions are well thought out. Here are some risk management tips that can be helpful:
- If you buy options at or close to the money, you would have staying power that would prevent you from being taken out by volatility. Be cautious and don’t buy out the money options and ensure that you use this method only when you have enough time at hand. Several traders end up losing just because they got stopped and not because they were \wrong about the trend. Options help in getting over this problem and give you staying power as a trader
- A number of traders begin to trail their stops to close so they’re able to pocket the profit. But often they get stopped before they get to the profit. The trade goes on to bring in more profit but often the traders are not in their positions anymore. It is better you keep your stop in its original position and allow the move to develop further. Avoid the urge to move your stop higher. Since you wish to make money quickly, you’re being picky about your trades. Have faith!
4. Keep the charts clean
After you open a trading account, you might want to make the most of all the technical analysis tools offered by the trading platform. Of course, a lot of these indicators are apt for the forex markets, but it is advised to keep analysis techniques to a minimum to ensure that they’re effective. If you use too many of the same types of indicators, such as two volatility indicators or two oscillators, they may be of no use or might even give opposing outcomes. Try to avoid this.
5. Leverage
Forex trading stands out when it comes to the leverage it is able to provide its participants. Forex trading can turn out to be very tempting because it allows you to earn more by opening large positions with very marginal investment which could be as little as $50. When used well, leverage can offer good growth opportunities but can also amplify losses.
A trader would be able to manage the leverage used by basing position size on the account balance. Say for instance a trader has $10,000 in a forex account, a $100,000 position (one standard lot) might use 10:1 leverage. The trader could have also opened a bigger position with higher leverage but a smaller position will limit risk.
6. Arbitrage
In simple words, arbitrage is making the most out of the price differences between markets. Traders could buy a particular financial instrument in one market expecting to sell the same for more in another market. Arbitrage is used in the forex market to earn from differences in the quoted prices of currencies. But these are not standalone differences between two currencies alone and hence the trader has to work “triangular arbitrage,” which includes three different trades to earn from the price differences.
Consider this
It is the absolute truth, be it in currency trading or any other venture–earning big involves taking calculated risks when the timing is right. Globally, the forex market offers a tempting avenue to traders as the account requirements are low, you can trade in whichever time zone that suits you and you get access to high amounts of leverage. With a business-like approach, forex trading could turn out to be very rewarding.
