You may have heard the term “foreign exchange trading” or “Forex Trading” once or twice before, but what is it?
Typically speaking, the only time that foreign exchange trading was something people did was when they were traveling to other countries and needed the currency of that country during their stay.
This process would involve exchanging some of the currency from their home country at a local bank or through a foreign exchange broker, and they would then receive foreign currency at the exchange rate that the bank or broker offered.
Now, that term (also referred to as forex) refers to a type of investment trading that has become more common.
There are many that wonder how foreign currency trading, which is often shortened to forex trading, works because they are interested in it and want to know more.
There is also the million-dollar question: does forex trading really work?
Starting out in the Forex Market
While it seems like something that could be easily grasped, the forex industry can be tough because the learning curve is actually quite steep.
Having said that, it is important not to dive head-first into this market without properly educating yourself.
It is important to note that Forex trading is not a scam.
The key thing to remember is that it is an industry that is set up primarily for those insiders who really understand it.
For new traders, the goal should be to survive long enough in the forex trading game to begin to understand the inner workings of the foreign exchange trading game and to become one of the aforementioned insiders.
This comes with time, studying the marketing, coming to learn and understand the terminology involved, and learning the complex trading strategies that make for a successful forex trader.
There are no short-term, easy solutions to learn the market, and if you think that there are, you will likely end up out of the market in short time.
Demonstrating patience and a willingness to stick with your strategy is what separates the successful forex traders from the rest of the pack.
Forex Trading Leverage
One of the things that typically dooms most new forex traders is the ability to use a feature in trading that is called forex trading leverage.
The ability to use leverage allows traders to perform trades in the market using more money than what they actually have in their account.
A good example of this is if you were trading 2:1. You would have a deposit of $1,000 in your brokerage account yet trade and control $2,000 worth of currency on the market.
There are many forex brokers that offer as much as 50:1 on leverage.
This is where new traders get themselves into trouble; they jump immediately to that 50:1 leverage without being properly prepared for the consequences.
New traders, most of them being optimistic, would look at this and say that they could double their account in a few days.
This might be true, but you could also lose your entire account in just a matter of days as well.
Watching your account fluctuate can be really tough to do; most think they can handle it, but until they see their accounts emptied, they don’t really know what it is like.
The way to make forex trading work for you is to study trends and find one that has better than a fifty percent success rate.
This will be the trend that you ride even through those scary dips in the market.
Being patient and knowing when to cut bait can be the difference in becoming successful in the forex market over the long term.
Your Emotions and the Market
If you manage to avoid the pitfalls that come with falling into the leverage trap, the next thing that you should be focused on is handling your emotions.
Being in the forex market can feel like being on a roller coaster, and it can be easy to ride that roller coaster through the ups and downs.
It takes control over your emotions to cut your losses at the right time and not fall deeper into the hole by holding trades for too long.
Generally speaking, forex trading is a formula and a method that you put forth on a consistent basis and without emotion.
Where most traders get themselves into trouble is when they become fearful because they have money tied up in a trade, and the market is not moving the way they want.
In this instance, a professional would stick to their method and close out the trade to limit the losses.
The amateur would let those emotions dictate their move, hoping that the market will come back, when in reality it will likely continue to trend in the wrong direction.
This is the quickest way to lose all of your money.
As the availability of leverage will work against you if you use it, your emotions will hinder your decision making and ultimately lead to your losing money.
The best way to avoid this is to develop a trading plan and stick to it.
You should have methods and strategies that you have tested that generate a positive result at least fifty percent of the time. It also helps to keep a forex trading journal so that you can keep track of your progress.
The forex market might seem like an easy way to quickly double or triple your money, but the reality is that it takes a lot of time and work to develop a winning strategy.
It is imperative that you have a strategy in place and that you stick with it as diligently as you can.
Learn what works, what doesn’t, and try to keep your emotions in check. These are the truest methods for developing a winning record on the forex market.
It is easy to get frustrated, but stick with your strategy, and learn to disconnect from the emotions that can get so many others in trouble.