If you’re someone who wishes to look past the stock market, forex trading may just be what you need. As a matter of fact, the currency market is the most active and largest financial market in terms of trading volume in the world. By leveraging the price movement of different currency pairs, you can generate returns in the short-term.
However, the forex market can be very volatile in nature and requires you to make careful trading decisions. Therefore, as a beginner, trading in such an environment might seem hard initially. That said, with the right tips and steps, you can slowly and easily ease into it. Here are 5 steps that you would need to take as a beginner to start trading in currency pairs.
Being a beginner, it is natural for you to feel overwhelmed when you first start forex trading. But that doesn’t mean that you should shy away from the market. By following the 5 steps listed below, you can start your trading journey in currencies in a smooth and efficient manner.
When it comes to trading in currencies, the first ever step that you would need to make as a beginner is educate yourself about the market. Although the forex market works in a very similar fashion to the stock market, the factors behind the movement of the currencies tend to be different.
For instance, one of the many factors that drive the currency market is the geo-political environment. Even a small development can cause a ripple effect that can strongly influence the forex market. Although geo-politics also affect the stock market, it is not as pronounced as in the case of currencies. Therefore, as a beginner to forex trading, it is important to thoroughly analyze and get to know the various factors that influence the forex market.
Another major thing that you should know is that currencies are traded in pairs and not on a standalone basis. Some of the most traded currency pairs in the world include USD-GBP, JPY-USD, USD-EUR, and USD-INR. It is crucial for you to know how each of these pairs work and what makes them move.
Selecting the right forex broker is as important as getting to know how to trade in currencies. Not all brokers offer the same level of services or are always reliable. Therefore, it is essential for you to spend some time looking into the various brokers offering forex trading services.
An ideal forex broker should have an easy account opening process, a simple trading platform, offer exceptional customer support and have low transaction costs. While evaluating brokers, make sure to look into their downtime frequency. Brokers that experience little to no downtime should always be favored, especially since forex trading is volatile and requires quick trade executions and responses.
Motilal Oswal is one such full-service broker in India that not only offers exceptional customer support, but also a dedicated and user-friendly trading platform with low brokerages. Thanks to Motilal Oswal’s robust trading platform, you won’t have to deal with downtimes that affect your trade.
Once you’ve opened a forex trading account with a reputed broker, the next step is to work on your financial goals and targets. Introspect and ask yourself what you hope to achieve by trading in currencies. Also, before you actually buy and sell currencies, it is a good idea to first determine your financial targets.
For instance, you can set a target for each forex trade you make or a target for each day or month of trading. Establishing these goals can make you plan your trades much better by helping you come up with a trading plan, which will ultimately make you a better trader.
Getting into forex trading without any clear goal or target in mind very rarely helps a beginner such as yourself. Without having a target, it becomes increasingly difficult to find the right entry and exit points, leaving you vulnerable to market volatility and unfavorable market movement.
After you establish your financial targets, the next step in your forex trading journey should be virtual trading. Virtual trading is the process where you trade in currencies in a simulated environment. There are several online tools that simulate a real-time trading environment and allow you to trade using demo accounts and paper money.
Through extensive virtual trading practice sessions, you can quickly get the hang of currency trading and try out new trading techniques and strategies. Since you’re not really trading with real money, you don’t have to worry about losing money on trades. Instead, you can spend some quality time learning the ropes and trying to analyze the trades that you make. This can give you some much-needed perspective on how to tackle forex trading in real-time.
Once you’ve gotten the hang of trading in currencies virtually, you can slowly move onto the real thing. Now, there are a few things that you should keep in mind. The forex market’s volatility tends to be quite high and can lead to wild swings in the price. Therefore, it is a good idea to start slow by using just a fraction of your total investment amount.
Also since forex trading works primarily on leverage, you can take on large positions by depositing small amounts of money. Thanks to such high leverage, you get to enjoy higher profits in the case of favorable trades. However, if the trade were to go against your expectations, you can also end up with severe losses due to such high leverages. Therefore, it is a good idea to start slowly and slowly increase the amount of investment.
Now that you’re aware of the 5 steps that you need to take to start trading in forex, go ahead and begin your journey. Alternatively, if you’re looking to diversify your portfolio, you could also dabble in the stock market or maybe invest in some upcoming IPOs, in addition to forex trading.
Whatever your decision may be - whether it is trading in currencies or investing in upcoming stock IPOs, remember that you would need an active demat and trading account. Without this, you cannot participate in either of these financial markets. So, if you don’t have an account to trade out of, visit Motilal Oswal today to open a demat account and a trading account within minutes.
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