How to Trade in Global Foreign Exchange Market
Foreign exchange trading is an interesting and profitable pursuit. If you strip the whole thing down to its bare essentials, it is just an exchange of a pair of currencies, one at a time. The maxim that applies to all profitable transactions applies here too, ‘buy cheap, sell dear’. Only, the difference is that you do not buy or sell any goods in this trade. It’s a barter system of currency, in which you exchange currency of one country for another, with the intention of profiting from the transaction, sooner or later. You buy a currency that you think will appreciate in value and you sell it when it does. Here ‘buying a currency’, means exchanging it for another.
To learn this type of trading, you must find the best training program to master its fundamentals. The fundamental thing that you need to understand is how the exchange rates are affected by global market developments. When you focus on two currencies, that you are exchanging, you need to monitor the import and export trends between those two countries and the liquidity in both the markets.
You also need to monitor global effects on the two currencies. You have two options, either you can operate independently by opening your own trading account or you could operate through a broker. If you are a beginner in this field, here are some tips from acclaimed masters of foreign trade, put together for you.
Beware of Cheats
Just like every financial field of endeavor, forex trading has its share of cheats and con artists, who are out there to dupe honest people. Always be suspicious of brokerage companies that promise gargantuan profits with zero risk. Big profits always come, after big risks are taken. Also, be wary of brokerage companies that promise investing your money in the interbank market as it’s not very transparent in its dealings. Make a thorough background check and verify the registration of the trading company before you set up your account with them.
Stay Connected with Experienced Traders
If you want to be the master of a trade, you have to learn from the masters. Get to know and stay in touch with experienced traders from the field. They have been there and done that. Learn from them as much as you can.
Do Your Homework Well
Stay connected with the latest happenings in the forex market but don’t get lost in data. Analyze and understand the cause and effect cycle in the forex market. Get in-depth knowledge of how the currency market is regulated and what factors affect its functioning. Understand why the numbers rise and fall and what causes exchange rate fluctuations. If you get your fundamental theory of forex trading right and stick to the basics, things will turn out to be right, more often.
Know Both Sides
When you are trading between two currencies, study them well. That is, follow developments on both sides and not just the high-value side.
Think Long Term
It’s always the best policy to think long term when you are trading and it’s also the mark of a good trader. Do not go for short-term profits when your judgment tells you that things in the long term will be better. Stick to your decisions and go for the kill, when you see a winner, and do not hesitate to sell out of a trade when you realize your mistake, out of stubbornness or hardheadedness.
It’s All About Timing
Remember that it’s all about timing when it comes to trading. New developments in the market always start after the morning news is out, as credit policy changes by central banks and world business news influence the choices of investors world over. It is advisable that you avoid trading off-peak hours. You do not need to trade 24×5. Fix your amount of working hours and get used to handling stress.
Keep your procedure simple and remember, you cannot control all the variables. So things are bound to go wrong in spite of all your preparation as the market is very fickle and driven by speculation. So be ready to brave the rough weather and steady your ship in the storm.