Forex trading is a rage these days. There are reasons for it. First and the foremost, there is less volatility in the forex market as compared to the equity market. Secondly, you can trade in online now. So, you can operate your business from your ‘home sweet home’! All this has created an atmosphere of safety and convenience for the forex traders. But wait! There are a few issues which you need to take care of while commencing your forex trading activities:
1. Be careful while selecting your broker
Remember that your needs and the borker’s ambitions are, many a times, mutually conflicting. Make sure that the broker you want to opt for is of good repute. Study the brokerage that he charges and do a comparative study. Also, think and apply your own mind before listening to the ‘trading tips’ given to you by your broker.
2. Stop loss is to your trading, what a brake is to your car!
This is the cardinal rule of trading, especially if you are active in currency derivatives. A stop loss is must! This will help save complete erosion of your capital in case the market does not go your way.
3. Choose the currency with the lowest spread.
As you must be knowing that every currency can be quoted as a buy quote and a sell quote (from the point of view of the bank). This gap is called as ‘spread’. To minimize your risk, select those currencies which have the lowest spread.
4. Use the ‘technical analysis’ but be careful and don’t trust blindly!
Analysis of the technical indicators is good. It is must, actually. But don’t be too complacent with it. Don’t put full trust on any one indicator. Analyze sufficient number of indicators before taking the final call.
5. Remember, its all about your money management and psychology.
Always remember that forex trading is 20% technical analysis, 40% money management and 40% psychology. All your technical knowledge is of no use if you are not good and money management. Money management refers to “how much to trade” and “when to book losses and profits”. Your entry and exit strategies should be frequently tested. All this requires a very stable, calm and a cool mind. Many times, trading can test your nerves. What you do in such circumstances plays a huge role in your success or failure as a forex trader.
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