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Note From Kalen: As with anything, invest at your own risk. I like to show all of the different investing options, but it’s up to you to make wise investing decisions. This is a topic that has not been covered much here so far, so here’s some insight to currency trading.
In 2014, it was estimated that the daily volume of foreign exchange trading stood at an impressive $5.3 trillion. This has increased further since, especially as the global economy has continued its recovery and driven greater interest in the financial marketplace.
Currency trading is an extremely difficult exercise, however, and one that is fraught with numerous challenges. Without a clear understanding or comprehension of the marketplace and the underlying laws that govern change, it is almost impossible to profit and easy to incur losses.
3 Important rules to remember when currency trading
So, what are the primary rules and underlying laws that will determine your success or failure when trading in currency? Consider the following:
1. You cannot profit without knowledge of the market
Knowledge is crucial if you are to succeed at anything, but particularly a complex and volatile practice such as forex trading. Unless you research the fundamental nature of the market, its underlying mechanisms and the ways in which currencies perform during times of growth and hardship, you will be unable to optimise your capital over time. Once you armed with this knowledge, however, you can trade intuitively and execute profitable trades regardless of the prevailing economic climate.
2. Practical skills will determine the extent of your success
The next step is to apply this knowledge in a practical trading environment, as it is your actionable skills that will determine whether or not trades are successful. To achieve this, you should consider honing your skills through a demo account, perhaps for a period of between three to six months. These accounts are available through major online brokerage firms such as FX Pro, and they enable you to replicate a corporeal trading environment within a simulated setting. This way, you can refine your strategies and gain experience without risking your hard-earned capital.
3. Currency trades are based on margin
When trading currency, it is imperative that you understand the nature of each transaction. Essentially, the forex market requires traders to buy and sell one currency in exchange or another, with each transaction based on margin and capable of delivering returns far in excess of their initial commitment. Such derivatives can also drive significant losses, however, so you must understand this and enter the market on a firm footing. To negate this risk, you can also implement stop-losses on your trading account and minimize the threat of losing capital.