3 Tips For New Forex Traders

If you are like many people, you might be thinking about investing money in foreign markets. This type of investing is called forex trading, and while it can seem difficult at first, with the right information you can make good choices that lead to substantial profits. Use the following tips to help you.

Stick with One Currency Pair

When you start forex trading, you simultaneously sell one type of currency while buying another. To do this, you must decide on a pair of currencies to trade. For instance, if you think the US dollar will fall in comparison to the Euro, you would sell your dollar holdings. If you think the dollar will appreciate in value against the Euro, you would buy more. If you think one will fall against the other, you sell. If you think it will appreciate, you buy. Some common pairs are: 

  • Euro and US dollar
  • Swiss franc and the US dollar
  • US dollar and Japanese yen

You might want to trade a number of different pairs, but when you are first starting out, it is important to stick with one pair. That's because you are still learning the ropes, and there are so many economic and political factors which affect the individual currencies at any given moment that you might be setting yourself up for failure if you take on too many pairs at once.

Deposit a Set Amount Each Month

It may seem natural that, after your initial deposit, you would continue to fund your trading account with money from your personal checking or savings account as needed. For instance, it is easy to become excited when you anticipate that you could buy a lot of a currency when the price dips, leading you to use much more of your personal savings than initially planned. If you lose a lot of money, you might want to add even more money to your trading account again to start fresh. Eventually you may discover you've depleted your savings.

It is important to keep your emotions in check and only deposit a set amount of money into your trading account each month, regardless of what is happening in the markets. You might also consider funding your account only with money you have made through trading.

Interact with Other Traders

Since you're just starting out, it may help you to join an online forum frequented by other forex traders. You can ask questions about the currencies you're trading and you can get advice about different forex indicators that can help you identify trends that can earn you money. The other traders can also help you avoid scams and other problems.

Use the tips above to help you experience success with forex trading. Be sure to seek out a broker that offers you a platform with a forex indicator and real-time tools you can use to make smart choices about your trades.