So that you, as a beginner in forex trading, do not lose interest in trading foreign exchange too quickly due to losses, you should obtain a lot of information on the subject and deal intensively with forex trading. In addition, there are some very useful tips that can help newcomers to forex trading in particular to avoid mistakes and thus also to limit possible losses or, in the best case, to be able to avoid them entirely.
Best Forex Brokers : The following overview therefore contains some important tips that beginners, but of course also advanced users, should take to heart when it comes to forex trading.
Use the demo account for training
Before you invest “real” money in forex trading, you should never refrain from opening a Forex demo account first. The account is free and is also offered by every forex broker today. This demo account can also help you decide which provider you want to use for forex trading in the future. Because in addition to the conditions, it is also very important that you get along well with the trading platform.
With the demo account you can on the one hand determine whether the trading platform fulfills all your wishes and on the other hand you can learn many functions related to forex trading in a playful way. Sometimes you can even design and test some strategies by placing these fictitious orders in the course of the demo account. Incidentally, the demo account is completely identical to the later real trading account or the “real” trading platform, both visually and in terms of functions.
Gather information from different media
The foreign exchange market is certainly not a very transparent market and even some experts are often puzzled as to why a foreign exchange rate is currently moving in one direction or the other. There are many factors that can influence the development of a foreign exchange rate. Of course, this includes above all the economic situation in the two countries or economic regions “affected” by the exchange rate, the political situation and a few other factors that can influence the relationship between two currencies.
In this respect, it is certainly helpful if you inform yourself about news from the areas of world politics, economy and finance, and of course especially about foreign exchange, if possible on a daily basis. There are many sources of information available in trade journals, daily newspapers, television and the Internet.
Start with small stakes
Even if you can already learn something about forex trading in practice by using the demo account, after two or three weeks of practice you are of course far from being a professional if you are actively involved in forex trading for the first time. For this reason, it is advisable to start real trading with relatively small sums, which should be in the range of 50 to a maximum of 500 euros. Basically, you should only use capital for forex trading anyway, which you can do without if necessary. That sounds a bit strange, because of course one never likes to lose capital, but it is only intended to make it clear that one should be aware of the risk that the invested capital could also be lost at any time.
Choose low leverage or a high margin at the beginning
The risk of a total loss in forex trading is also largely determined by the amount of the margin or the amount of the leverage. If, for example, a margin of only 0.25 percent is required when buying a currency from the forex broker, which means a leverage of 400:1, you would already suffer a total loss if the currency bought in each case increased in value by 0.25 percent of the other currency loses, even if the rate falls below this loss threshold for only a few seconds. If, on the other hand, the margin were five percent and the leverage “only” 20:1, you would have a “cushion” of five percent as far as possible interim price losses are concerned.
It is therefore certainly a good tip for newcomers to forex trading to start with a maximum leverage of 50:1, better still 20:1 or 10:1. However, if the broker only requires a margin of 0.25 percent for a currency, you can of course increase this indirectly yourself. For example, if you actually want to invest 300 euros, you only invest 30 euros as a margin, and thanks to this “reserve” you have a margin of 2.5 percent and one from the margin of 0.25 percent and the leverage of 400:1 Leverage made by 40:1.
Start forex trading with “hard” currencies
Another tip for beginners when trading forex is to invest in the so-called “hard” or “strong” currencies first. With these currencies, the volatility (range of fluctuation) is significantly lower than with “smaller” and “exotic” currencies, which gives a certain degree of security. For example, it is much less likely that the exchange rate between the dollar and the euro will change by three percent in one day than if you were trading the euro against the Argentine peso, for example.
Furthermore, the spreads are also significantly higher with “soft” currencies, which also has to be taken into account as a cost factor. With hard currencies such as the US dollar, euro, Swiss franc, British pound, Canadian and Australian dollar, you have at least a certain degree of stability, even if there is of course no guarantee that the exchange rate between the euro and the dollar will not change can fall or rise by several percent in one day.
Working with limits and stop-loss orders
It is recommended that both a beginner and an advanced trader in forex trading should use limit orders. With a limited buy or sell order, you can ensure that you do not experience any “nasty surprises” with the price actually paid, as can sometimes be the case with unlimited orders if a certain exchange rate suddenly “jumps” in one for various reasons or other direction.
The limit ensures that a purchase or sale is only carried out if a certain price is not exceeded or fallen below. Limit orders are particularly important for “exotic” currencies, because here, due to the relatively low trading volume, even a slightly larger order can have a strong impact on the price.
Another important tool from this division is the stop-loss order. With this special order you can either secure profits that have already been made or limit possible losses. The functionality of the stop-loss or can be explained relatively clearly using an example. Suppose you bought US dollars against the euro at the rate of $1.3500. In general, of course, one now hopes for a rising dollar, because then profits would be achieved.
But of course the dollar can also weaken against the euro, which would mean losses. For example, if you want to limit these eventual losses, you could place a stop loss OR above $1.3700. This order will cause the dollar holdings to be automatically sold should the dollar fall to 1.3700. If the dollar does not reach this mark or even gains value against the euro, the order will of course not be executed. This way you can avoid bigger losses.
A very important tip for beginners in forex trading is also to trade currencies based on strategies and not rely on intuition or gut feeling. Because then forex trading would be nothing more than a gamble. You can either develop your own strategies or orientate yourself towards already existing strategies, which are available in large numbers.
As a beginner, you should use a more security-oriented strategy, for example investing in strong currencies with little use and the lowest possible leverage. A strategy is always based on various analyzes of currencies and exchange rates. A distinction is made here between chart and fundamental analysis. While historical exchange rate developments are examined in chart analysis, fundamental analysis is based on economic and political facts and news relating to the respective currencies.
Of course, the safety-oriented strategy also includes the use of limits and stop-loss orders. In any case, before buying or selling currencies, you should always set a goal for yourself, which profit you want to achieve and what maximum loss you are willing to accept.