The world of Forex trading can be alluring, but remember, sustainable growth is built on a strong foundation. Starting small allows you to lay the groundwork for potential success in this dynamic market. This initial phase provides invaluable experience in several key areas.
Firstly, risk management becomes paramount because you need to carefully protect your capital, as you have a limited amount of money to trade. You’ll therefore learn to size your positions appropriately and implement money management strategies to protect your capital. It’s a skill that cannot be overlooked, as safeguarding your money is the lifeblood of any trading journey.
Secondly, starting small allows you to test and refine your trading strategy in a real-world setting. A well-defined strategy acts as your roadmap to success, and this initial phase builds confidence in your approach as you put it to the test in the currency market.
Finally, the emotional rollercoaster of Forex trading can significantly impact your judgement. By starting small, you have the opportunity to develop discipline and emotional control. Mastering these aspects is essential for long-term success in the face of market fluctuations.
Once you’ve solidified these fundamentals and established a consistent trading plan, you’ll be well-equipped to steadily grow your Forex account step-by-step. Remember, patience is key, especially in the beginning. With limited funds, you’ll also need to remain mindful of trading fees while you build up your experience and refine your approach (have a look at our article to learn a few ways to lower your trading fees).
A little reminder: What is Forex trading?
The Forex market, also known as the foreign exchange market, is a global financial arena where currencies are constantly traded. It boasts the title of the world’s most liquid market, with a daily trading volume exceeding a staggering $7.5 trillion.
This dynamic marketplace allows you to speculate on the future value of currencies. Major currencies like the euro (EUR), US dollar (USD), and Japanese yen (JPY) are readily available for trading, alongside minor and exotic currencies.
The core instruments of Forex are currency pairs.
Each pair consists of two currencies, with the first designated as the base currency and the second, the counterparty currency. In the USD/JPY currency pair for example, the USD acts as the base currency and the JPY as the quote currency.
When trading a currency pair, you’re essentially buying the base currency while simultaneously selling the counter. Your decision hinges on your forecast: If you believe the base currency will strengthen compared to the counter, you buy the pair. Conversely, if you anticipate the base currency weakening, you would sell the pair (short-selling).
Unlike traditional stock exchanges, Forex is considered an alternative investment option and operates in a decentralised manner. There’s no single central marketplace for transactions. Instead, trades are executed through a network of financial institutions like brokers and banks that connect market participants.
A key advantage of Forex is its extended trading hours, as the market operates 24 hours a day, 5 days a week, offering flexibility for investors and traders to participate whenever they’re available and depending on which currency pairs they focus on.
5 reasons why most retail traders lose money on the Forex market
You cannot think about growing your account if you’re not generating consistent returns, and the reality is, many new Forex traders fall into pitfalls that hinder their progress. Here are some common mistakes that often keep retail Forex trader from achieving consistent profitability:
- Lack of trading knowledge and experience
- Unrealistic expectations
- No trading plan
- Poor risk management
- No control over their emotions
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.