In recent years, interest in foreign exchange trading has almost exploded among private Danish investors. The use of interest rate differentials and significant price fluctuations has made it attractive to speculate in Dollar, Franc, and Yen. But lack of experience and routine in trading on the world’s largest marketplace among large banks, hedge funds, and professional traders often results in significant losses to the small fish.
We give here 10 useful tips for the inexperienced currency trader:
1. Never invest more money than you can afford to lose.
The old investment advice here is more relevant than ever. In the foreign exchange markets, it can go very fast and very quickly in a short time, so you should always start small and slowly build up.
2. Choose a good broker.
As for choosing a new bank for your regular banking business, you should look around carefully before choosing your broker for your currency trading. It is seldom your current bank can serve you properly for currency trading. In particular, you should pay attention to the cost per trade, the cost of transactions in and out of your account, etc. In short – read all the fine print and compare with other brochures. And remember, some of the best brokers may be abroad where the competition is most significant!
3. Keep track of the risk.
The main reason why small traders and speculators are blowing their accounts down is that they do not keep track of the risk. Every time you take a trade, you must be 100% sure you only risk a minimal share of your total account so you can handle a whole series of losses and still be able to act afterward. Your capital is your ammunition, without which you cannot survive in the war. As a good rule of thumb, you should never place more than 1-3% in risk per trade.
4. Always use stop orders.
Every time you buy or sell a currency pair, you should still place a so-called stop order that automatically closes your trade if the market goes against you too much. Sometimes it can be difficult even to have the discipline to take a loss, so it is important that you have put a line in the sand before which you are willing to lose money, but no longer. A stop order is also helping to protect you should any important economic vital figures to be announced, which is a short time may cause the foreign exchange markets to move up and down sharply.
5. Have a plan and follow it.
The time when you go in or out of a currency cross can depend on many factors. Whether you shop for fundamental reasons, for example, based on expectations of interest rate developments in the United States, or technically, for example, based on the relationship between buyers and sellers, you should always have a plan for your trade and follow it to completion.
6. Be realistic in your goals.
Despite the massive potential for quick gains, you should set realistic goals for your currency speculation. Compare your account with a savings or investment account with your bank. How much interest per year does it give? Would you be happy and satisfied if you got an interest rate that was 3 or 5 times greater per year? “Yes!” Most would say. By conservative trade, one can achieve this goal without shooting himself in the foot. Never make the mistake of trying to become a millionaire on every trade, for it will never succeed. Slow and calm growth is the path to long-term success.
7. Set time frames for yourself.
The foreign exchange market is open 24 hours a day from Sunday evening to Friday night and can sometimes swallow much of one’s time if one is first bitten by it. It can be draining for yourself, your family, and your work, so it is essential you set a framework for when and how much you shop so that things are balanced. Many years of experience say that the most efficient and profitable trades are done on the daily and weekly basis where there is not too much “noise.” For example, you can sit down with a cup of coffee every night for half an hour and see how the markets close in the US or just once a week over the weekend. Place your orders (remember to stop order) and recheck the week after or some days after. You rarely earn more money in the foreign exchange market, the more often you shop or, the more you sit in front of the screen, on the contrary.
8. Never go against the market.
It may sound a bit boring, but to avoid unnecessary loss of money and hairstyle, one should never act against the overall direction the market has. If one can see that the market is moving up, one should only consider buying and, in the same way, if the market moves down, one should only consider selling. It is self-deception if you think its small micro account can force the market to go in the direction you want. So in short, only take positions that are in the course of the flow.
9. Take small losses and let the profit run.
As mentioned in point 4, it is essential that we use stop orders to take us out of the market if it goes against us. Small losses are a natural part of acting and should be accepted. When you sit with a winning hand that dries out, it is equally important that you leave the position as long as possible. You can move your stop order for the market day after day, or week after week, so you slowly lock the profit inside, but one should never close a trade in a small profit just because it is finally here. By realizing significant gains, you can afford more and more “small” losses, and they will eventually not be so expensive for you once you have built up your account.
10. Seek inspiration and sound advice from independent sources.
As an utterly green currency trader, it is easy to fall into the claws of one’s brokers or bank’s excellent and moral advice, but it is essential to remember that these are primarily interested in you taking such missing trades as possible so that they can earn a lot on commissions. It can, therefore, be a good idea to seek inspiration from independent sources who have specialized experience with active currency trading and who can be a right sparring partner for your dispositions. If you have ideas for trading opportunities, you can get an entirely objective answer or even follow in the heels of more experienced traders until you feel ready to take the reins.
If you are not yet fully ready to deal with your hard-earned savings money, you can and should only start trading with a demo account. Such an account offers the vast majority of brokers and is an excellent idea to feel the currency market and your trading platform. You quickly learn to create, delete, and change your market orders, and at some point, you will naturally move to real trade. It will soon realize what a fantastic market is for your feet. A market that is the largest financial marketplace in the world where trillions of USD are traded every day and where there are far more and better trading opportunities than in the stock markets.