Home News Forex Three Things You Must Know Before Starting To Trade Forex

Three Things You Must Know Before Starting To Trade Forex

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You have probably heard the term Forex all your life, but never really bothered to find out more. You are now exploring investment options, and Forex came up. Forex means the foreign exchange market. The Forex exchange is where the world’s foreign currencies are traded and is considered to be the largest market in the world, and the most fluid.

Forex does not have a centralized market but exists wherever there is a trade of two different currencies. It does not close and is operational 24 hours a day and for five days every week. The existence of Forex is to make trade and investment easier for everyone involved. The major trading centers are New York, Paris, London, Tokyo, Frankfurt, Zurich, Singapore and Sydney, where different traders in different levels, from speculators and central banks trade currencies.

Most people tend to think that forex will catapult them into instant riches. It is a process, and like any other sector, there are things you must first learn. Nothing happens overnight, and anything that promises overnight riches is a scam. What are the things that you need to know?

Forex Is Not A Get Rich Quick Scheme

As mentioned before, most people tend to think that they will become millionaires overnight. Forex can make you outstanding amounts of money, but you have to be patient. Forex trading in the Australian market is a skill that needs time to develop.

You have to understand that sometimes you will lose money. Losing money happens if you have poor discipline, planning, no trading edge, and you have poor or zero money management.

There are, and never will be any forex trading shortcuts, and there is simply no substitute for diligence, hard work, and patience. You must practice gaining experience!

Over Leveraging Can Lose You Money

Too much leverage and you might end up losing money on a strategy that would have made you money. What exactly is leverage? Leverage refers to using a small amount of money to control a more substantial amount. In forex, leverage is borrowed capital, geared to increasing returns, and is also called trading on margin. The leverage size in Forex typically exceeds the amount of money invested several times over.

Professional traders trade with low leverage to protect their capital in case of any trading blunders and also keeps your gains constant. Trading with little leverage means you must make fewer trades and deposit more money. Just because you can use leverage does not imply you have to., and the general rule of thumb is, the less leverage, the better. Knowing when to use leverage comes with experience, but it is better to err on the side of caution, making yourself some money in the process.

Make Use of Speculative Sentiment Index (SSI)

The Speculative Sentiment Index (SSI) is an index released twice daily and offers a comparative look at the number of traders buying and selling every primary currency. Every account is counted, and trade size does not count. The result given is one number, either negative or positive which tells the trader’s sentiment. If the SSI is negative, it means there are more sellers than there are buyers, if positive, there are more buyers than sellers.

SSI is considered a contrarian index, which means you go opposite to the market trend. If the SSI is positive and most people are buying, you look for a selling opportunity and vice versa. The number from the results represents one trader for every trader trading in the fashionable direction. For example: If SSI is -5.68, there are 5.68 sellers for every one buyer, and if SSI is +33.03, there are 3.03 buyers per one seller.

Conclusion

Forex trading is a profitable venture, but certainly not for the faint-hearted. You need to thoroughly understand the market and gain experience before you can call yourself a professional trader. The best way to learn about Forex trading is to engage a trusted and reputable broker for guidance. Trying to dive into the trade all by yourself will be risky, and you might lose money in the long run.

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