Foreign exchange (forex) trading, is, in simple terms, the conversion of one currency into another. The forex market is one of the most actively traded, liquid markets in the world. Many transactions are done for practical purposes, but most conversions of currency pairs are done by forex traders, in the hopes of earning a profit.
Trading forex pairs can be a great way to invest your capital, but of course, doesn’t come without risk. Join us as we take a look at some of the top forex strategies to help you become a successful trader, and that could help to minimise the risks of losses in the market
Read on to find out more.
The first step to becoming a successful trader when looking to trade on forex trading platforms like Skilling, for example, is to define what success looks like to you. Set yourself some financial goals, as this will be an effective way to measure your success. By asking yourself what outcome you are hoping to get from your trade and establishing this – you will provide yourself with some direction and focus.
Understanding forex pairs
As a trader, you will know that currencies are traded in pairs. To become successful, it is crucial that you understand how they work.
A forex pair consists of the two currencies that are being traded against each other. The base currency, which is the currency on the left of the pair, is always equal to one. On the right of the pair is the quote currency. This is equal to the quote price of the pair at that moment in time.
There are hundreds of combinations of currency pairs to choose from. The most popular currency pair amongst traders at the time of writing is the Euro against the US dollar (EUR/USD). Second is the US dollar against Japanese Yen (USD/JPY), and then the British pound against the US dollar (GBP/USD).
Getting to grips with the factors that can affect a currency
The value of currencies can be impacted by a variety of factors, therefore it’s important to stay vigilant and be aware of what’s going on around the world, conducting extensive research before you take a position on the ever-changing market.
The Coronavirus pandemic is a prime example of an unprecedented factor that can affect a country’s economy. Some other factors that can affect a country’s economy, and in turn, the value of their currency, include:
- Political updates
- Supply and demand
- Interest rates
Record and analyse
Keeping notes and writing down important details such as the entry and exit levels for each trade is crucial to becoming a successful trader. You should make note of the time you took action, as well as what the support and resistance levels were.
When you analyse your records, jot down your profit or losses, the average time per trade, any drawdowns, and other important factors you want to consider as you continue with your trade.
Like with any form of trading, forex trading does not come without its risks. Putting stop loss orders in place is a great way to help you manage this. These will enable you to cap your risk level per trade, helping to prevent significant losses, as you’ll be able to exit the position at a specific exchange rate.
Set entry and exit rules
To ensure you have a solid trading plan, as well as the ability to check on the success of the trade, you’ll want to be aware of the conditions in which you enter into the trade, as well as the conditions you exit under, and how you use risk management tools. Without doing this, you won’t have the chance to review, learn and improve your trading strategy.
Staying in control of your emotions and not letting them control how you trade is vital when trading forex. It’s important to remember that you have no control over the direction of the market, so staying level-headed and rational is vital.
The use of leverage
Leverage will enable you to gain greater exposure in the market without depositing so much of your own capital. This will give you the potential to amplify potential profits, however, also increases the risk of making significant losses. Therefore, it’s recommended to keep leverage to a minimum, helping to minimise risk.