Forex has become one of the most popular business opportunities in recent years. In 2010 alone, retail forex traders made over $150 billion in transactions.
While the career is understandably very alluring, it is not easy to be successful. Less than one in 20 forex traders are able to create a profitable business. The rest of them lose their shirts and often end up in bankruptcy.
What distinguishes the successful Forex traders from the rest? Here are some things they do to succeed.
Choose a trading style that aligns with your goals
One of my old clients is a Forex coach. During their first meeting, lots of people ask him what the best approach to being Forex trader is. Obviously, he has to tell them that there is no one-size-fits-all approach to currency speculation.
Many variables come into play. The biggest two are:
- Risk aversion
If you are the kind of trader that can’t stomach the idea of keeping an open position for very long, then you will probably be better suited for day trading. Otherwise, you should consider being a position investor.
It is important to find a trading strategy that you were comfortable with that supports your long-term goals.
Look to uncommon currency pairs
Mastering a couple of markets can be the key to being a successful Forex trader. You will have better luck testing markets with less competition, such as Latin America or Africa. The markets in the United States, Canada, Japan and United Kingdom tend to be very oversaturated, which can make it difficult to create a profitable business model there.
You will get a better feel for the markets if you understand the geopolitical and economic events that affect the currency prices in regions with less competition. Research them carefully by reading market news before investing in them. You will have much better luck if you do.
Find a trustworthy broker
Choosing the right broker is extremely important. Some brokers lack the resources to process trades quickly, which puts you at a tremendous disadvantage in the international Forex market.
There also a lot of shady brokers out there. Some brokers are based overseas and will freeze your account as soon as you make a deposit. They may outright steal your money or require you to pay a ransom before they will allow you to make a withdrawal.
It is important to choose a broker in a well-regulated market. You also need to do your due diligence to make sure they are trustworthy. Don’t worry about if they are not the usual sites – you can easily check to see if they are legitimate using set measures.
Be careful about overleveraging yourself
Forex traders often overemphasize the benefits of margin trading. They point out that buying currency on an 80 percent margin means that the profits of your profitable trades will quintuple.
This is true, but the inverse is true as well. If you lose money, your losses will be five times greater than if you purchased without leveraging your investment.
Leverage can be great for smart traders with a large budget. However, it can also be the bane of inexperienced traders for those that place trades they can’t afford to lose money on.
It is best to avoid using leverage, until you know how much you can afford to lose. You can take on more risk with leverage after you have learned the markets better.
Featured Image from Shutterstock / By Frantisek Czanner