How to safely start your forex trading career

How to safely start your forex trading career. Image credit: AdobeStock

How to safely start your forex trading career

While global traders now have more opportunity and knowledge to trade than ever before, it’s inevitable that more will flock to the forex market. But what steps can you take to trade forex safely, and why is this so important?

How to safely start your forex trading career

How to safely start your forex trading career. Image credit: AdobeStock

We’ve already seen a marked increase in global forex trading through the digital age, with daily volumes having soared from just $5.1 trillion to an impressive $6.6 trillion between 2016 and 2019. 

This is thanks largely to increased knowledge and the growing accessibility of online brokerages, while more recent numbers suggest that growth is also being driven by demand in the developing world.

Since the beginning of the coronavirus pandemic in March 2020, for example, forex trading has seen growth of around 300% globally. However, the majority of new trading accounts (60%) are from developing regions like Africa, Southeast Asia and Eastern Europe). 

What is Forex Trading?

The forex market (also known as the foreign exchange) is a global marketplace for exchanging fiat currencies. Here, international currencies are traded in pairs, which describe the price quote of the exchange rate for the assets in question.

The first asset listed is described as the base currency (which is bought), while the second is known as the ‘quote’ currency and subsequently sold.

The forex market is speculative in nature, which means that traders can profit from appreciating and depreciating prices as they don’t have to assume ownership of the underlying financial instrument.

In general terms, forex markets exist as spot (or cash) markets, in addition to derivatives which offer forwards, futures, options and currency swaps to traders across the board.

The Challenge Facing Forex Traders

Trading in the African region has been under the spotlight of late, with the Financial Sector Conduct Authority (FSCA) warning that the public should be cautious when dealing with the crypto asset ByBit.

This platform offers trading in derivative instruments through its online trading platform, which operates in a largely unregulated space and one that has minimal protections for traders.

While forex trading is considered to be a reputable and largely trusted pastime, it does pose significant challenges to investors (and particularly newcomers).

For example, the forex market is incredibly volatile, as prices can fluctuate wildly from minute to minute. Of course, this also creates opportunity for scalpers and traders with a short-term outlook (who can leverage price shifts both positive and negative to their advantage).

There’s also the opportunity to embrace considerable leverage as a forex trader. In fact, some reputable and licensed brokers are able to offer leveraged products of up to 200:1, enabling you to open and control positions that are disproportionately larger than your initial deposit.

You can use margin to gain optimal leverage in your account, and while this can increase your potential returns markedly, it also has the potential to trigger seismic losses.

Another challenge is posed by the lack of a practical and workable trading strategy, which is central if you’re to navigate the forex market and sustain profitability over an extended period of time.

While this is at least partially built on theoretical knowledge, you’ll also need practical trading experience and a heightened sense of determinism to cultivate the very best forex trading strategies and ultimately succeed.

Here is a XM review regarding forex trading.

How to Kick-Start Your Forex Trading Career

At this stage, all that’s left is to understand some of the practical steps that you can take to safely and securely launch your forex trading career (while overcoming the challenges referenced above). Here are some key considerations to keep in mind:

#1. Develop a Comprehensive Trading Plan

We’ve already spoken about scalping, which sees forex traders execute a high volume of orders that leverage the price movements that take place over minutes. 

However, it’s also possible to engage in position trading, through which you can open and hold forex trading positions over a period of weeks and even months.

So, it’s important that you develop an informed forex trading plan that suits both your level of experience and underlying philosophy as an investor. 

By selecting the most relevant option from the various strategies to trade forex, you can optimise your chances of success while managing your expectations with regards to both profit and loss.

#2. Use a Demo Account Where You Can

There remains a considerable gap between cultivating theoretical knowledge and practical trading experience, which is why it can be hard to develop an investment plan without putting your hard-earned capital at risk.

However, you can use a demo account to bridge this gap and optimise your chances of being successful in the forex market.

A demo account is available through most online forex brokers, and works by simulating accurate market conditions in real-time. You can usually access a demo account for a maximum of six months, during which time it’s possible to actively trade the corporeal marketplace without risking a single penny of your cash.

Using a demo account is a must if you’re to test and hone specific forex trading strategies, at least without incurring unnecessary risk or having to incur sizable losses.

#3. Cap Your Own Leverage

Risk management is key if you’re to succeed as a new or inexperienced trader, and this can take multiple forms when trading online.

For example, you can use account tools such as stop losses to safeguard your capital. These work by automatically closing open positions once they incur a predetermined level of loss, and enable you to trade in a 24-hour marketplace without having to compromise on your day job or quality of sleep!

In general terms, we’d also recommend that you take steps to cap your leverage and avoid opening positions that dramatically exceed your capital holdings.

Ultimately, you’ll need to ensure that you avoid being over-leveraged in such a volatile marketplace, where sudden and seismic losses can consume all of your funds and trigger a margin call from your broker of choice.