Becoming a successful forex trader requires you to have a degree of comfort in balancing the risk and reward of the world’s biggest liquid capital market. Whether you take part in professional forex trading or if you’re just getting started, forex trading can take time to get accustomed to.
That’s why we’ve compiled four professional tips that can help you become a better forex trader and more profitable with your trading.
Let’s jump into it.
Choose a reputable broker
Dozens of online forex brokers are looking to win your business, so you need to make sure you take the time to vet any potential broker you consider going with. The first check you should make when selecting a broker is researching their reputation.
For example, in the US, a reputable forex broker will be a member of the National Futures Association, a self-regulatory agency for the futures industry – a reputable broker should have their NFA number listed in the “About Us” section of their website.
If you’re not trading in the US, then check to see if the broker you’re using is registered to the relevant regulatory organisation where you’re trading.
Additionally, you should aim to select a broker that suits your forex trading ability. Some advanced brokers can be difficult to trade with, while other brokers are more simple and designed to accommodate beginner traders.
You should also make sure the broker you choose offers a high level of customer service. Forex trading occurs 24 hours a day, five days a week, so the broker you use should have round the clock support available.
Seek out experienced traders
As with learning any new skill or getting ahead in any industry, seeking out experienced professional forex traders can help you avoid making beginner mistakes and give you inside tips on how you can boost your trading performance.
If you’re able to try seeking out a forex trading mentor who has experience successfully trading on the markets. Here are some things to look out for when you’re looking for a mentor:
A mentor should conduct their own trading – ideally, any trader you choose as your mentor should be a full-time trader with extensive market experience who either trades their own money or manages the money of others and follows the markets and news affecting the markets regularly.
A mentor should be able to back up what they teach – an experienced trader who is successful in their markets should be able to show you what they’re doing to be successful. What a mentor teaches you should save you a lot of time and help you avoid the costly mistakes of using a trial and error approach to get better at trading yourself.
Suppose you can’t get access to an experienced trader in person. In that case, educational resources such as trading journals, forums and YouTube can be useful places to learn from experienced traders without having a direct relationship with an experienced trader.
Select an appropriate currency pair
When you’re selecting the currency pair you wish to trade with; you’ll need to think about the level of volatility you’re comfortable with. Are you looking to make a short term gain? Are you looking for incremental profit over time? Your decision on this will dictate the kind of market you should trade in.
If you’re after short-term gains, you should look at trading in fairly active markets that have a high daily range compared to the price spread. When you’re selecting a currency pair, keep the following factors in mind:
Time of activity: Each currency pair will have a time when it’s most active. This is the time when any news affecting either currency may influence the rate that it’s published. If you’re looking to trade at a certain time of the day, then you should consider choosing the currency pairs that are most active during the time you’re looking to trade.
Volatility: Volatility in forex trading refers to the fluctuation range of a currency pair during a certain period. Some currency pairs trade with relatively narrow ranges of volatility, while others have wider ranges. The higher the volatility of a pair, the larger the potential profit and potential losses.
If you’re still new to trading or your risk tolerance is lower, then choosing a less volatile currency pair is recommended. Common lower volatility currency pairs include GBP/USD and AUD/USD, higher volatility currency pairs include GBP/NZD, GBP/AUD GBP/CAD and GBP/JPY.
Conduct regular research into factors that could affect the markets
Any long term success in forex trading depends on the trader being aware and carrying out regular research into economic and social factors that could affect the markets and currencies they’re trading with. Factors that can affect the markets you’re trading in and the currencies you’re using include:
- Political unrest – a stable country with less risk for political turmoil or risk is more attractive to foreign investors. More investment can lead to an increase in the value of a country’s currency. In contrast, a country with more political unrest will be less attractive to investors and may experience depreciation in exchange rates.
- Interest rates and inflation – a nation’s interest rate, inflation rate, and forex rates are all correlated. An increase in interest rates can cause a currency to start depreciating in value because higher interest rates provide higher rates to lenders; this helps attract more foreign capital, which causes exchange rates to rise.
Whatever currencies you choose to trade with, make sure you take the time to keep an eye on the political situation, the interest and inflation rates and the general economic states of the countries relevant to the currencies you’re trading with.
A lot goes into successful forex trading, and it can take time, research and investment to see success. But by taking the time to decide on the currencies you want to trade with, your risk tolerance, choosing a reputable broker and seeking out experienced traders for tips and advice, you can boost your chances of seeing success with your forex trading.