Currency trading is one of the most volatile and liquid markets globally. It has a volume that exceeds nearly $6 trillion each day. Due to the high volume, forex attracts millions of investors daily from various fields. In addition to professionals, doctors, engineers, lawyers, etc., take their place amongst retail traders. The ongoing coronavirus crisis has added to the increasing numbers. Our article will discuss how traders can make money from the forex market and what tools are necessary.
Important Terminologies to Know
Let us go through a few characteristics of forex trading that every currency trader should know.
- Margin. Leverage is a common way to open big lot sizes. It is borrowed money available from the broker that traders can use to their advantage. Many exchanges can provide wide leverage of 1:3000; however, traders should consider that exceeding margin requirement can result in liquidation.
- Currency pairs. Traders generally classify forex pairs into the following categories—Major, minor and exotic. The first includes six currencies, including JPY, CAD, AUD, GBP, EUR, and CHF, paired with the United States dollar. The second involves all the minor economics with one another without including the USD. The last pairs a weak currency with the USD, for example, USDINR.
- Long and shorts. It is possible to speculate currencies on both the long and short sides. When traders buy, they get the quote currency and sell the base and vice versa.
- Orders. CFD trading offers the opportunity to place orders of multiple types. For example, stop limit, GTC, etc. Depending on the broker, it is possible to set various executions in different directions on the same pair.
- Broker. A forex broker provides live currency feed to traders. They also have a platform for trading and list various deposit and withdrawal options for chasing in and out quickly.
- Availability. Traders can access forex trading worldwide with the help of an internet connection and a mobile phone. Applications provide adequate charting features and have all kinds of orders at an investor’s disposal.
Financial trading is subjected to regulation by many regulatory authorities. They ensure that no one gets scammed and that the traders are treated fairly in the complex market environment. A few good names of such regulators are:
- United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
- United Kingdom: Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)
- Australia: Australian Securities and Investment Commission (ASIC)
- Cyprus: Cyprus Securities and Exchange Commission (CySEC)
How can traders in Nigeria start trading with a forex broker?
Traders can sign up with any exchange by providing their email id and password. Most brokers offer various options to fund your account. Banks transfer, cryptocurrencies, credit cards, and e-wallets are standard methods. It is vital to note that the broker is regulated by one of the top regulatory authorities.
Important Points to Note
A few vital points can keep you from losing. Let us go through them below.
Risk management is one of the most critical factors in trading. It is vital not to bet all your account on a single trade. A 1% risk is considered suitable for most traders in the financial markets.
Psychology takes its utmost importance in trading. It is considered to compute about 80% of the total regime. With greed and fear in mind, it is not possible to compete with the big guys for long. Many books available online can be read to maintain a solid mindset while on the charts.
A sound strategy includes a good risk-reward coupled with a win ratio. Before implementing any game plan onto the charts it is essential to use it on a demo account.