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Why You Should Think Before You Trade Forex

Trade Forex

Deciding to trade forex is a bit more complicated than making a decision to invest in a stock or a piece of real estate. Since currencies do not move at the same speed that some stock prices can record, you have to use a lot of leverage in order to generate a substantial profit. The only other capital market that has this situation is the futures market. However, most people don’t have any experience in trading futures. So, the additional leverage inherent in forex trading can cause a lot of stress and trading losses. Fortunately, the trade forex industry is aware of this problem and almost all major forex banks and brokers offer “demo accounts” for you to practise on. These accounts are real, in every sense of the word, but they don’t use your money. As such, they constitute almost perfect teaching tools.
Deciding how to learn to trade forex successfully is not a casual decision. It takes a lot of time and attention to master the basics.

Advantages And Disadvantages To Consider Before You Trade Forex

The biggest advantage that trade forex has over other investments is the amount of debt that you can use to launch a trade with. Many banks and brokerage firms offer leverage ratios of 100:1 or more. To understand the power of this kind of situation, just imagine buying a $100,000 house with 1% cash down (which is what “100:1” means) – except instead of a house, you are buying a forex contract and each one is worth 100,000 of the currency pair in question. The greatest disadvantage in forex is the amount of time that you need to spend researching what you want to do and the strategy you want to use. You also have to keep up with the news.

Do You Have Time To Trade Forex?

Many people think that they have the time to trade successfully, but in actual fact, they don’t. It’s a question of prioritisation. If you have a young family, they must go first. If you have elderly parents who need help, they must go first. If you’re devout and highly active in a church, that might go first. If you rabid about socio-environmental issues, those might go first. So, really getting into trading is only for someone who has made a conscious decision to expand their investment horizons and is willing to take the social hits that may result from spending a lot of time looking at forex charts. This is also why many traders retire after a couple of years.

Can You Hold You Nerve When You Trade Forex?

Until you have figured out at least 1 trading strategy that consistently produces profits, stay with a demo account, testing out more strategies. You only want to go “live” when you have something that can produce profits 6 out of 10 times. (Only in this fashion will you feel comfortable with your decision to trade forex and not have to rely on your nerves to see you through.) It doesn’t have to be something fancy. In fact, it could be just using a “Williams Alligator” in conjunction with a “Fisher Transform”. “The Alligator” works best on 1-hour, 4-hour and daily charts. This means that “swing traders” and “trend traders” might be interested in testing it out on the EUR/AUD or AUD/USD.

 

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