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Forex Education

What You Need To Know Before You Start Trading Forex

June 01, 2018
BY Emma Richards

Want to start trading forex? It is a complex, highly liquid market with the opportunity for both big risks and big rewards. Are you up for it?

Here are five things you need to know before you start forex trading.

Manage Your Money Carefully

Every forex beginner needs to ask themselves three things:

  • How much money can I work with?
  • What is my tolerance towards risk?
  • What are my forex trading objectives?

Coming up with answers to these three questions will allow you to select your trading strategy and manage your money carefully. It is essential to have your financial goals clearly outlined before you make any decision when it comes to forex trading, be it selecting your leverage or going against the market.

Don’t Micromanage Your Forex Trades

Novice forex traders often make the mistake of micromanaging their trades. This is the wrong way to go about forex trading.

With the countless trading strategies out there and the overwhelming amount of information at your fingertips, it is easy to be overwhelmed. By letting yourself become anxious and impatient however, you will inevitably react impulsively when a trade or position moves against you.

By being impulsive, you will trade more than you need to, and you will quickly find you have abandoned your original game plan. If you have studied the charts and outlined key objectives properly, you will want to stick to this plan rather than trying something else on a whim.

Here are the three better ways to trade forex:

  • Refrain from trading with real money without making sure you have at least a basic education in forex
  • Focus on the day-to-day movements of prices
  • Focus on the daily chart; study the highs and lows produced by daily fluctuations

Take Advantage Of Stop Loss Orders

A stop loss order is an order that automatically closes your position if it does not go your way. Stop loss orders will quickly become your best friend in the forex market.

But how do they work?

Let’s say you bought several lots of GBPUSD (that’s Great British pounds against US dollars) via market order at 1.2600. Being a prudent trader, you set your stop loss levels at 1.2555. Unfortunately, the price of GBPUSD quickly drops past 1.2500 but, happily, your stop loss order will have kicked in, limiting your financial damage.   

There are four primary types of stop loss methods:

  • Chart stop: you stop your positions based on what the market is indicating
  • Percentage stop: a typical trader is willing to lose up to 1.5% of the trade
  • Time Stop: stopping a trade based on a predetermined length of time
  • Volatility stop: if the price moves too low, too fast

The great thing about stop loss orders is that they are automatic. You simply set them and can then rest easy knowing that they will activate if the market moves against you.  

Learn more about stop losses and other order types here.

Start Small – Don’t Panic

In addition to learning the basics of forex trading through reputable books, websites, and blogs like this one, you can also learn by participating in the market. If you aren’t already an expert, it’s a good idea to start small. In other words, trade what you can afford (and what you can afford to lose).

With Exness you can open a real account with as little as USD 1, meaning you can experiment without exposing yourself to too much risk. Alternatively, if you don’t want to risk any money, simply open one of our free Demo accounts and trade with virtual funds. The more you learn and the more you trade, the more confident you can be in your decision-making ability.

Here is one more tip to consider: don’t panic! If a position doesn’t immediately head in the direction you want, or if a currency pair is suddenly taking a nosedive, don’t automatically hit the sell button. You should instead just wait how the market unfolds and follow through with your trading plan. Always remember; the forex market requires patience, objectivity and the ability to bide your time.

Choose a Forex Broker Tailored to Your Needs

There are many forex brokers available on the internet and you will need to do careful research when picking yours out. Everything from the amount the broker charges in fees and commissions to the availability of customer service should be considered.

Make sure the broker you choose matches your needs and your wallet. Pay particular attention to:

  • Available leverage
  • Narrowness of spread
  • Instant withdrawals and deposits
  • Customer service availability
  • Reviews online from other traders

Check out this blog post to help you assess how to pick the right broker for your needs.

Happy trading!


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