How to Start Making a Profit With Forex Trading

Live Forex Signals Trading | It’s possible to trade profitably on the Forex, the $6.6 trillion worldwide currency exchange market. But the odds are against you, even more so if you don’t prepare and plan your trades. According to a 2014 Bloomberg report, several analyses of retail Forex trading, including one by the National Futures Association (NFA), the industry’s regulatory body, concluded that more than two out of three Forex traders lose money. This suggests that self-education and caution are recommended. Here are some approaches that may improve your odds of making a profit.

Prepare Before You Begin Trading

Because the Forex market is highly leveraged—as much as 50 to 1—it can have the same appeal as buying a lottery ticket: some small chance of making a killing. This, however, isn’t trading; it’s gambling, with the odds long against you.

A better way of entering the Forex market is to carefully prepare. Beginning with a practice account is helpful and risk-free. While you’re trading in your practice account, read the most frequently recommended Forex trading books, among them:

• • “Currency Forecasting: A Guide to Fundamental
  • “Forex Strategies: Best Forex Strategies for High Profits and Reduced Risk
  • World of Forex

Diversify and Limit Your Risks

Two strategies that belong in every trader’s arsenal:

Diversification: Traders who execute many small trades, particularly in different markets where the correlation between markets is low, have a better chance of making a profit. Putting all your money into one big trade is always a bad idea.
Familiarize yourself with ways of guaranteeing a profit on an already profitable order, such as a trailing stop, and of limiting losses using stop and limit orders.

These strategies and more are covered in the recommended books. Novice traders often make the mistake of concentrating on how to win; it’s even more important to understand how to limit your losses.

Be Patient

Forex traders, particularly beginners, are prone to getting nervous if a trade does not go their way immediately, or if the trade goes into a little profit they get itchy to pull the plug and walk away with a small profit that could have been a significant profit with little downside risk using appropriate risk reduction strategies.

How to Start Making a Profit With Forex Trading

Why You Need a Forex Account to Trade

A foreign exchange account, or Forex account, is used to hold and trade foreign currencies. Typically, you open an account, deposit money denominated in your home country currency, and then buy and sell currency pairs.

Your purpose, of course, is to make money on your trades. Unfortunately, the majority of beginning Forex traders lose money; they generally spend less than four months reaching the point where they have lost so much that they will close their trading account.

How You Open a Forex Trading Account

The requirements for opening a Forex account have become simpler since the growth of online Forex trading. Today, opening a Forex account is almost as simple as opening a bank account.

First, of course, you’ll need to find a Forex broker. All retail Forex trading goes through and is managed by a brokerage. Some may be specialized Forex brokers, or they might be the same brokerage you use for stock market investing and trading.

You’ll need to fill out a brief questionnaire about your financial knowledge and trading intentions. You’ll also need to provide an ID, and the minimum deposit your Forex account institution requires. That’s it. You’re now free to trade.

Forex Brokers

One of the aspects of currency trading that makes it riskier than trading in the stock market is that the entire currency trading industry is either lightly regulated or—as with some trades—not regulated at all. A consequence of that is that unless you look carefully into the reputation of the Forex broker you select, you may be defrauded. There are two ways of avoiding this.

The other way to avoid inadvertently connecting with a fraudulent broker is to proceed very carefully when considering a specialized Forex brokerage. Only open an account with a U.S. broker with a membership in the National Futures Association (NFA). Use the NFA’s Background Affiliation Information Center to verify the brokerage and its compliance record.

The Difference Between Forex and Commodity Trading

The biggest differences between forex trading and commodity trading stem from the significant differences in the products traded in these markets. Both forex rates and commodities can be traded as pre-defined contracts through a futures exchange, but commodity contracts cannot be traded through the forex market. A commodities market trades in goods such as coffee, cocoa, and mined products such as gold and oil. Forex—the foreign exchange, also abbreviated as FX—is a global market that trades in currencies such as dollars, euros, and yen.

Many of the approaches and analysis of the two markets mirror one another. Which market you prefer has a lot to do with your comfort level with the following factors.

Personal Choice

Some people feel more comfortable with certain types of markets. Some people like commodities because it’s a physical market they can relate to. Because many commodities can be seen in everyday life, some traders prefer commodities because they can connect to things like sugar cane and wheat.

Differences in Regulation

The commodities markets are very regulated, while forex is more like the wild west. There is some regulation with forex, but it’s a lot looser. There is a fair amount of circumvention of what little regulation exists already. And some traders feel they are better off with the government on their side.

Leverage in Forex and Currency Markets

Although there is leverage in both markets, there is a significant amount of leverage in the forex market and you don’t have to jump through hoops to have it. All you do is fund your account with a few hundred dollars and you can control thousands. While leverage is also an option in commodities markets, the leverage in forex trading is much more spectacular.

Exchange Limits 

Commodities trade on an exchange whereas foreign exchanges are over-the-counter and traded through brokers or in the interbank market. By trading on an exchange, commodities have daily range limits. When these limits are exceeded, the markets are said to be limit up or limit down, and no trades can be placed. If you are a commodity trader on the wrong side of one of these limit moves, you basically are watching your account dissipate without the ability to act. FX Profit Signals

While quick losses can also happen in the FX market, there are very few instances where you are absolutely unable to exit your trade which can happen with exchange limits and commodity markets.

Gold Trading Basics: All You Need To Know

Compromise

 A trader looking for a compromise could trade commodity-based currencies. These currencies include the Australian dollar, the Canadian dollar, and the New Zealand dollar. Historically, the Australian dollar has a positive correlation to the price of Spot Gold (although the strength of the correlation varies over time).1 The dairy reliant New Zealand economy has a similar positive correlation with whole milk powder prices.2 Lastly, the Canadian dollar has a positive correlation with the price of crude oil. 

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