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How Foreign Exchange Trading Works

At some point in history, foreign exchange trading only sufficed when a person was on travel to foreign countries. The process was, simply, a matter of exchanging one’s currency with that of the foreign country and counting the gains or losses dictated by the currency exchange rates.

However, like everything else in life, foreign exchange changed in the way it was handled and perceived. It is no longer a simple process of exchanging a currency for another, for convenience. The term foreign exchange trading now refers to vibrant international currency trade. Currency is a trading item, like any other on the stock exchange. Traders are constantly engaged; trying to predict prices on the forex market, and angle for the highest gain. The change in the values of the currencies of different countries is often a subject of interest among traders. In other words, it is not a passive activity. It is serious business but it can double up as a leisure activity.

 

How to Start Foreign Exchange Trading

If you are a beginner in foreign exchange trading, you need to note that while it is an easy venture to join, it is one of those that are most likely to disappoint. In fact, the new traders tend to fail more in foreign exchange trading. There is always a feeling and thinking among those who join the trade for the first time that although others failed, they can do it in a better way. According to the data available, a great percentage; up to 96% of such traders burn their fingers in foreign exchange trading. Many such victims feel cheated and conclude that they were subjected to a scam.

 

Well, the truth is that there is normally no scam. Forex trade has its own tricks and rules that one must master before they venture. Indeed, even the most experienced traders still fail sometimes. In other words, forex trading tends to favor insiders. Therefore, the intention of a new trader should be to make as less costly mistakes as possible to enable them to stay long enough to learn the secrets and the tricks of the trade. In time, then, they become insiders and earn from forex trade ventures. It would help if novices seek the help of a professional broker such as trade111.com or tradefxasia.

 

One of the challenges that new traders experience is how to use the forex trading leverage. Leverage allows a trader to operate with more cash than they actually hold in their account. For instance, if a trader is at a ratio of 2:1, they could make use of a deposit of $ 500 to control $ 1000. There are many brokers that give traders a chance to leverage, even at 50:1.The latter is where the trap lies. Most new traders rush to take the 50:1 trading leverage. What they miss out on is the possible consequence of such a ratio.

 

Leverage trading sounds relaxing. Indeed it can be a refreshing stress-free experience if you are gaining in the trade. However, the chance of such success is what is reduced significantly by such leverage. In other words, you are more likely to make losses if you are using it.

 

In practical terms, a trader doing 50:1 with $ 1000, and trading 50k on the market, each of the trading bids is worth $5 approximately. If the daily move on average is 70: 100 pips, it adds up to about a daily loss of $ 350. The consequences, in black and white, are, that on a bad streak, you could lose your whole $ 1000 in three days in forex trade; doing a leverage of 50:1. Of course, the higher the risk, the higher the gain. So, on the flip side, you could make as much money in the same period if you are lucky. What all starters in forex trade should remember is that people make mistakes in forex trading too.

Avoid the Mistakes

The first handy secret is to hold a tight rein on your emotions. The fact that leverage exists, makes it tempting. However, stay sober all the time when making choices. It is best to have a trading plan so as to avoid the emotional turmoil. It is also advisable to maintain a trading journal. You should remember that there are a lot of people struggling with forex trade but they hide it. So, don’t beat yourself too hard when it doesn’t go your way. It is best to practice forex trade before venturing into the deep end. Use trading demos and begin with small amounts. It’s a learning process. Soon you will be an expert, and you will also win big. Remember to stay honest with yourself, all the time. Do not live a lie.

 

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