Author:Vishal Doshi


Simple Rules to Learn Forex Trading :

Rules to learn Forex Trading involves two things :

DO's :
Use your Logics :
  • Always remember to use your logistics before investing your capital.
  • Make decisions on what you have studied about the market and not on what you hear from other investors or your broker.
  • Earning profits in short time might get you overconfident and encourage taking a huge risk, which might prove unfavorable and bring you back, from where you started.

Technical and Fundamental Analysis are a must :

  • Fundamentally you might observe a rise in the price of a certain security, but technically, it might be suffering a declining trend.
  • Selling your part will be favorable.
  • Or you may observe a fall in the price of the certain commodity, but,
  • technically it has an inclining trend in the market.Hence, buying is favorable.
  • So, you must learn to be both, Technical and Fundamental Analyst

Be Psychological :

  • Learners often make mistakes when they try to trade perfectly.
  • They plan only profitable strategies.
  • But these newcomers get disappointed as reality is not about always earning profits.
  • They need to think psychologically and prepare themselves mentally to suffer more losses initially.

Be enough patient :

  • A simple rule in Forex Trading also suggests that if you are early, you are mostly wrong.
  • When you analyze a need to stop trading, immediately take a ''Favourable Stop.''
  • Trust your instincts.
  • Trust what you have measured in the market.
  • Make decisions very patiently.
  • Taking short cuts often cause heavy loss.

Always remember Reward is uncertain :

  • Beginners have to understand that ''Reward to Risk'' ratio is 2:1.
  • Nothing is predictable in trading.
  • Take risks with mental preparation of even incurring a loss for a short time.
  • Also, remember that Forex Trading is all about taking risks.
  • Without risks, there are zero possibilities of rewards.

Take Breaks :

  • Continuous study of price charts will hinder your mental and physical states.
  • It is necessary to relax your mind from constant hammering of price changes.
  • Learn to take breaks when a reasonable Stop Loss is a safe move or when there are no open trades at that time.
  • There are chances that you will miss a random opportunity, but it is unavoidable.

Consider Forex Trade as an "Art":

Any Trading rule can save you from wrong investments, but no Trade Rule completely accurate.

DONT's :

Don't be a sheep :

  • Don't invest by what you hear from fellow investors or brokers.
  • Trust your market research.
  • In fact, do opposite of what others do, it might prove more favorable

Don't get emotionally trapped :

  • Don't continue trading with an upset mind.
  • Learn not to make Emotional decisions will lead you to make losses.
  • Concentration is a must for following your investment strategies.

Don't be impulsive :

  • It is very important to learn not to be impulsive.
  • Initially controlling your mind over figures will be difficult, but learn to control it, or you will have to face the consequences in the form of losses.
  • Such impulse nature can even make you go bankrupt.

Don't take an unnecessary risk :

  • Your hasty mind will take wrong decisions of buying and selling.
  • Excessive confidence is very harmful.
  • If you are a headstrong person, it will lead you to make wrong strategies and will not let you understand upcoming trade signals.

Don't take the risk of more than 2% per Trade :

You should not take the risk of more than 2% per trade because one big loss will litter your gains earned for years.

Don't use all your gains :

Saving some share of your gains in your account will help you to refill your account at the time of margin call.

Don't invest all your capital in a single product :

  • You should not invest all your capital in one place.
  • Set up different live accounts, once you learn to trade.
  • Use skills of different brokers.
  • It will reduce risks.

Don't fall into False Hopes :

  • Don't have high expectations.
  • Investors suffer losses even after spending a high time on the market.
  • Losses are a part of the trade.
  • There is no algorithm of earning ''only profits.''

How to pursue a Forex career ?

Basic requirements to start a career in Forex market are :
  • You need enough money to your account.
  • 24/7 market study.
  • Ability to make decisions on your own.
  • A professional level of understanding terms and conditions relating to Forex.

Advantages of pursuing a career in Forex :

Helping hands in the form of Technical analysis and fundamental theories :

  • You have a support of technical signals for short-term investment strategies.
  • You also have fundamental theories to guide you for long-term investments in Forex market.
  • You get options with these wide concepts to enter the Forex market for any period.

Low level of Brokerage and Commission :

  • You need not worry about separate brokerage charges.
  • Brokers earn from the spreads at the currency prices.
  • Whereas in equity you have to pay separate fees for the trade.

Follow different Trading Strategies :

  • You can be a short-term investor, to earn small profits with lesser price fluctuations. You realize quick profits. You risk more by investing more time for constant market updates.
  • You can be a medium-term investor, and take the opportunity of technical analysis to earn higher profit compared to a short-term investor. You have to hold your positions for more than one or more days. You require lowest investments compared to all three types, as your goal is only to improve your returns.
  • You can be a long-term investor, wanting to hold your position for a longer time in months or years and making decisions based on your long-term fundamental analysis. You require a huge amount of capital to be a long-term investor.

More liquidity compared to other financial markets :

  • More investors are investing in Forex market compared to other financial markets providing most money.
  • It regulates currency spreads in a better way and allows systematic pricing
  • In non-stop trading, you need not worry about static prices during the day or too many fluctuations in prices during opening hours, as observed in equity markets.

No interference by any Central Regulatory :

  • Forex market works all over the world, without any hindrances of any central regulatory.
  • Central banks of various countries do interfere many times, but only in case of serious events.
  • Market with lesser regulations and decentralized power avoid sudden changes.
  • In Forex market no insider trading occurs because of international factors and comprehended developments.
  • You can take short positions that are not allowed in other financial markets.

Unpredictability is beneficial :

Traders with proper market knowledge benefit their investors with high profits in the situations of unpredictable fluctuations.

Options available in currency pairs :

  • 28 major currency pairs exist in the current Forex market.
  • You can switch to currency pairing according to his convenience of time and developments in the economy.

The requirement of lesser Capital :

  • You can initiate investments in Forex market with low capital.
  • In other financial markets like equity, you require a larger amount of capital.
  • High leverage trade is like a bonus for investors.
  • There is a risk when you trade with an expectation of high leverage, but it is favorable when you want to earn more with restricted capital.

Easy Entry :

  • You have benefits of numerous technical signals and fundamental analysis tools to help you to decide for short-term or long-term investment goals.
  • You get many different options as a trader to make an easy move in the market.

Disadvantages of pursuing a career in Forex :

Forex market is under the control of activities of brokers:

  • Brokers dominate Forex market, so it is not transparent.
  • You trade with the professionals here.
  • You have a limitation of knowledge of your broker regarding price rates.
  • You must hire a regulated, well-experienced broker which is the only solution to your problem.

Higher you hold, higher is the Risk :

  • Forex market provides leverage of 50 : 1.
  • You need to have only $1 to get position worth $50 in Forex market.
  • You have to understand the dual effect if you earn more with less capital; you also tend to lose more with higher capital.
  • Holding your pairs for a longer time is also unfavorable.
  • You have to take big risks with strong control over your emotions.

Extreme Level of Fluctuations :

  • It is difficult to survive in Forex market because of unpredictability created by wide concepts of macroeconomic and global politics.
  • In other financial markets, traders pressurize management for any changes needed.
  • You cannot blame or pressurize any such Regulatory as a trader of Forex market.
  • It is difficult for traders to keep a constant eye on the fluctuation of prices because Forex market works non-stop by 24/7.

No Teacher :

  • As a learner in the stock market[1], you can get assistance from trade advisors, portfolio managers, and stock agencies. But, such helping hands are not available to Forex traders.
  • You have to sincerely keep learning and keep updating yourself with existing market fluctuations throughout your trading career.
  • Many traders get demoralized as they suffer heavy losses because of no guidance and insufficient knowledge and quit at an early stage.

Difficulty in determining Currency prices :

  • Information that you get regarding economic and global politics is not completely reliable.
  • Forex rates are affected by multiple factors of the global market.
  • Forex traders rely on signals. But, wrong technical trading indicators might lead you to incur a loss.

Who is a ''Market Maker'' ?

  • An individual or a company who quotes buying and selling prices of commodities like stocks, loans and deposits, currency pairs[2]as inventory and provides finance, with the expectation of earning a profit in future, on buy-sell spread, is known as a Market Maker in Forex trading market. According to the U.S. Securities and Exchange Commission-
  • A Market Maker is a firm who is ready to purchase or sell stocks at a public quoted price, on a regular basis.
  • A specialized Market maker legally hired to take a position in particularly designated security, option or option index is called DPM i.e. Designated Primary Market Maker.
  • Banks and hedge funds are also market makers.
  • Market makers challenge one another to provide best rates to their customers.

How Market makers earn money ?

Market makers earn commission for providing finance to their clients.

Market maker Spread :

The variation between the bid prices of the stock and it's ask price, is known as the Market Spread.

Why do you need a Market maker ?

  • A market maker offers tighter spreads of leverage, which is the basic requirement of any trader of Forex market. Tighter spreads of leverage improves profit returns on your investments
  • ECN flicks due to fast moving machine spreads. Market makers avoid these barriers of faster moving rates.

You need to understand the terms of Forex trade :

Types of currencies in Forex market :
  • Base Currency is the currency that you sell.
  • Quote Currency is the currency that you buy.
  • In Forex market, you sell one currency to buy another currency.
Types of market positions :
  • Short Position is the position where you want to sell base currency and buy quote currency.
  • Long Position is the position where you want to buy base currency and sell quote currency.
  • The Exchange Rates is the rate at which you will have to sell quote currency to buy base currency.
  • The price, at which a trader is willing to sell his quote currency in exchange of his base currency, is known as Bid-Price.
  • The bid price is the best currency price for sale in the market.
  • The price, at which your broker is ready to purchase a base currency in exchange for his quote currency, is known as Offer Price or Ask price.
  • Ask price is the most favorable price for purchase from the market.
  • Spread is the variation between the Bid price and Offer price.

Where to find prices on the screen ?

  • You will see the Bid Price column on the left.
  • You will see the head of Offer Price on the right of bid price column.

Strategize what you are willing to buy or sell :

  • Draw assumptions for currencies rate are prevailing in the market.
  • Observe a country's trading position.
  • A nation with more commodities will make more money by exports.
  • You have to evaluate the political behavior of a country, if a political party high in demand will regulate in future, there are chances of increase in currency prices.
  • Go through economic reports of a country's inflation rates, employment rates, GDP[3], imports and exports, companies, banks, insurance, government policies, mortgage, real estate and other similar economic criteria.

Calculate profit :

  • Pip means change is a value between two currencies by a fourth decimal.
  • For example, if your EUR/USD trade moves from 1.5872 to 1.5873 then your pip has grown by ten pips.
  • One pip means 0.0001 change in the value.When you multiply exchange rates with these pips of your account, you get to know the change in the value of your asset.

Find suitable Brokerage :

  • Search for a broker who has worked for 10 or more years.
  • Verify your broker's regulation under an oversight body:
    • United Nations: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC).
    • United Kingdom: Financial Conduct Authority (FCA).
    • Switzerland: Swiss Federal Banking Commission (SFBC).
  • Check the range of products you selected broker covers to know his market value.
  • If you find the broker's website unprofessional, don't wait to step aside.
  • Focus on brokers with a good reputation.

Choose between opening a personal account or a managed account :

  • A personal account is for the trader himself.
  • A managed account is for your broker.

Fill up the form :

  • Download a PDF file or ask for mail.
  • The amount you are transferring from your personal bank account into your brokerage account is your fees that will cut down on profits.

Your account is activated :

In the fourth step, your broker will send you a link in email, connect to that link to activate your account and get started.