Back in 2014, it was estimated that £5.3 trillion was traded each day through the forex market. Although this number continues to fluctuate in line with the wider market conditions, approximately 90% of this volume is generated by currency speculators who are looking to capitalise on intraday price movements.
This can be a daunting market for new or inexperienced investors, particularly when you also consider its volatile nature and high levels of liquidity.
With this in mind, we’ve created a beginner’s guide to currency trading in the digital age. So let’s get started.
- Understand the Marketplace
Not all financial markets have been created equal, while the same can also be said for asset classes and fiscal instruments. As a result, it’s important that you understand the forex market and the basics of currency trading before developing your strategy.
Forex trading is derivative by nature, as investors can profit by speculating on market shifts rather than assuming ownership of the underlying financial instrument (in this case currency).
As a result, it’s possible to profit from currency trading even as the market depreciates, while investors can also trade on margin and increase the value of their gains or losses in the process.
These basic facts should form the foundation of your forex education, while also informing your investment strategy and attitude to risk.
- Bridge the Gap Between Theory and Practice
While knowledge is one of the most important tools in a forex traders’ armoury, this means little unless it can be applied in a practical setting.
In order to bridge the gap between theory and practice, you’ll need to test and refine your trading strategies using a demo account. Available through online platforms such as ATC Brokers, these accounts offer you access to a risk-free and simulated market environment, through which it’s possible to execute orders and build practical experience trading forex in real time.
You can usually use this type of account for up to six months, and it’s an excellent way to cultivate effective trading strategies without placing your hard-earned capital at risk.
- Understand the Importance of Determinism
As an inherently volatile market, the foreign exchange remains vulnerable to sudden price movements throughout each trading session. The value of currencies is also influenced heavily by the prevailing macroeconomic climate, with measures such as inflation and interest rates important considerations for investors.
While it’s important to recognise this, you should also maintain a keen sense of determinism as an investor. This forces you to recognise the underlying laws that govern change in the financial marketplace, while ensuring that you do not react emotively to every trend or price movement that takes place during the day.
Ultimately, a deterministic outlook will help you to achieve your short or long-term investment goals, as you try to speculate on the performance of your preferred currency pairs within a set time-frame.