In each new activity, whether it’d be a job, investment opportunity, or business, there are mistakes to be made, and mistakes can be costly. To allow yourself to move up a level in your new endeavor, it can help to learn from people who’ve been there before, which is why in this article, you will read some things that are worth your consideration, especially before you start trading forex.
1. Don’t pay for training or seminars
You live in a world where information is everywhere. Just a two-second search on Google will provide you tons of results about the information you’re hunting for. You just need to be willing enough to look for it.
Here’s why: Most of the paid training you’re mulling over are merely compilations of free information. So, you’re basically paying someone to arrange and present you free stuff because you’re too lazy to look for it yourself — you’re not actually paying for new knowledge here.
Action step: Scrutinize the people offering training, seminars, or courses before you subscribe yourself to any of it. Are there new information, new market data, and observations in their offerings? Or are they just repackaging something Mr. Google can answer?
If the information you’re looking for is available on the internet, make use of that and reserve your training money for something more valuable.
2. Be careful of scams!
The internet is filled with con artists. Some are downright pathetic — stupid enough to ask for money on emails blatantly. And, some are so clever that you’ll realize they’re scamming you when it’s too late.
In the forex industry, the tactic is always to entice clients to think they can make a lot of money. Promotions that neglect the risk component of trading highly leveraged financial instruments are misleading investors and are probably run by scammers.
Action step: Be wary of the stuff you see online. It also helps to be aware of the latest fraudulent activities so that you can acquaint yourself with their pattern and keep away from them. And, an advertisement that says you can make a lot of money doesn’t pertain to you but to the people running that advertisement once you fall for their trap.
3. Be careful of unregulated brokers
Newbies are victims of this all the time because they are so eager to start making money, and they will open an account with any broker without a moment’s hesitation.
The problem with opening an account with an unregulated broker is they can do whatever they want with your money as soon as you deposit to your trading account. Unregulated brokers can make it seem like you’re earning money on your computer screen to make you yap to your friends about the opportunity. But once you start withdrawing money, you’ll find yourself in a powerless situation. Your money is as good as gone!
Action Step: You have to keep in mind that regulation is case-by-case. Countries have different standards when it comes to regulating financial firms. The best course of action is to look for countries that go the extra mile when it comes to transparency. This means that instead of opening an account with a forex broker registered in an obscure territory, go for those who are regulated by the FCA or CFTC.
4. Assess your capabilities and skills
Not everyone can be traders. You have to know what your skills are and how you deal with tasks under pressure. When you see your account plunging rapidly, are you going to freak out or are you going to remain chill?
Successful trading doesn’t require a desire for money because the market is teeming with that already. Instead, what successful trading requires are two things: an analytical mind and steady emotions. If you can’t meet both parameters, you will end up among the 80% of traders who lose money.
Action Step: Take time to think about your skill set, and if you can remain level headed when real money is on the line.
5. Assess your finances
You can’t trade money you borrowed from somebody. You can’t expose retirement money to the forex market either. Why? Well, this increases the sense of urgency to make money, which will affect how you handle greed. And, greed can take over unexpectedly in situations where you feel like there’s a possibility of gaining more even though in reality, there isn’t.
Plus trading currencies deals with probability. The analysis stems from what happened with prices in the past, which is a guide for determining how it will move in the future. So, for example, if there’s a 70% chance of the EUR/USD moving up after making such analysis, then that means there’s still a 30% chance of it going down.
Disregarding the 30% can be disastrous, especially if you gamble with money your livelihood depends on.
Action Step: Trade only with “risk capital.” Risk capital is the money you can lose but still be able to buy food and pay rent tomorrow.
6. Don’t focus on the money gained by others
Yes, it’s tempting to begin trading when people you know are making money because it feels like you’re missing out on something. And, no one likes to be left out.
Anyone can make money in trading regardless if you have any knowledge about the markets or not, but the profits of others who are as clueless as you are should not be your basis for jumping in on the forex train. People can win trades either by a rigorous analysis of what’s highly probable to happen in the market or by sheer luck.
Action Step: Make it a point to be objective with how other people achieved their results. If they have zero-knowledge in the markets and had just begun trading recently, it’s possible that the only reason for their transitory success is good fortune.
Here are some wise words by Howard Marks, the author of Mastering the Market Cycle: “The investor who has no skill at selection has the same ratio of winners to losers as the market.”
7. Trading is not easy
Contrary to what some brokers want you to think, trading is not easy. It’s not automatic: when you open a trading account, you don’t instantly make $100. Some investors who’ve dedicated an entire career in learning the investing game still have losses in their track record. So, there should be no reason for you to think that trading is a piece of cake.
As mentioned earlier, successful trading requires analytical skills and steady emotions or a strong stomach when things go south. If you don’t have those under your belt, then don’t mistake trading to be a painless endeavor.
Those brokers who purvey successful trading is achievable by anyone are just out to get investors’ money and walk away.
Action Step: Respect trading.
8. Trade with a Practice Account
Before you start risking real money, you need to practice first. You need to be familiar with the trading application, how currencies move, and the viability of your trading strategy. It would be foolish to dive right into trading volatile assets with only introductory knowledge.
Practice or demo accounts can move you up in your forex trading learning curve by simulating real-time trading. It will help you test the profitability of your strategy, and it will also improve how you quell your emotions — as long as you treat it like a real account.
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