One of the most popular investment vehicles to gain traction in our electronic world over the past decade has been foreign exchange trading. The Internet has been the enabler, and countless forex brokers have come forward to give you access, train you, and unleash you onto the world’s largest market. Estimated at over $2.5 trillion of volume per business day, the shear size, liquidity and flexibility are unmatched by any other trading arena.
Major international banks and financial institutions control most of the action where average transactions are five million of the base currency. However, their trading desks service the global community of broker/dealers to permit retail participation by individuals at much smaller investment amounts. The Forex market opens in Tokyo, moves to London, and finishes in New York, every business day, excluding regional holidays.
The popularity of the service relates to its flexibility. You can trade at home, at the office, or even at Starbucks, wherever wireless access to an Internet portal is available. However, as with any other investing regimen, there is potential for reward if system risks are appropriately mitigated. In the world of Forex trading, mitigating risks equates to preparation, knowledge, experience and controlling one’s emotions.
- Preparation: Your first assignment is to read as much about the topic as you can find on the Internet, at your local bookstore, or at the public library. Once you believe you have a feel for the lingo and subject matter, assignment two is to enroll in a forex trading class. You are an “apprentice”. You must learn your trade from the experts before trying anything on your own;
- Knowledge: You must be able to find, read and assimilate basic economic news and fundamental information that could affect the future price behavior of your chosen currency pair (start with one, until you feel comfortable enough to expand). Your training “mentor” will instruct you on search techniques and where to look for useful information, and also how to interpret various forex charts and their related indicators;
- Experience: How do you come by experience? Brokers are already ahead of you. They do not make money unless you are successful, so they provide a free “virtual” forex demo account just for this purpose. You must practice with “virtual” money, using real time trading data, in order to develop a disciplined approach to the market, and then to hone your trading skills. There are no shortcuts here. You must be willing to put in the time. Successful traders admit that they practiced for three, or even six to twelve, months before they gained the confidence and consistency they deemed necessary to risk their own money in the frenetic currency markets;
- Controlling Emotions: You must approach the market of foreign exchange trading with a disciplined, intellectual framework for decision-making, free from the distraction of your internal emotions. Once again, practice hours are required. Know your entry and exit points beforehand. Don’t get married to a trade position. Cut your losers, and let your winners run.
As with every form of investing, there are no shortcuts to success. Countless studies have shown that the failure rate of beginners is directly related to impatience and inexperience. Eagerness to jump into the market, compounded by ego and greed, is a prescription for poor performance, and sometimes, a complete loss of capital. “Practice, Practice, Practice” should be your creed to live by. With preparation, training and proper practice, you, too, can reap rewards from this exciting profession through disciplined decision-making, devoid of emotional attachments of any kind.
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