If you’re thinking of setting up your own business, working solo from home, forex trading has a lot going for it. Forex is short for foreign exchange, and this type of business basically means buying one foreign currency and then trading it for another- hopefully at a profit. Different currencies are always gaining or losing value in relation to each other. Your aim will be to stay as far as possible on the winning side of that equation.
Why forex trading?
The currency market has the most liquidity of all the different financial trading markets, and as it is a truly global market it is effectively open 24 hours a day. That’s because as the market in one country closes, one on the other side of the world will just be opening, so you can trade actively at any time of day or night, leaving positions open as you sleep or catch up with other activities. At the same time, however, there are really only a small amount of currency pairs you’ll need to keep an eye on, as opposed to thousands of viable shares on the stock market.
Another advantage of forex is the ability to trade on a margin, using leverage to increase your potential profits while still only needing a relatively small capital sum to invest. There are significant risks involved, but the volatility of the forex market also increases its profit potential.
Is it for you?
Understanding the risks, and your own risk tolerance, is the first step to take if you’re thinking of setting up your own forex trading business. This kind of enterprise isn’t for everyone. Do extensive research and put together a trading plan that includes your trading goals, and formulate a strategy to achieve them.
Your initial research should focus on understanding the world of forex trading inside out. This should include knowing how to read charts and indicators, to be able to use the tools and software at your disposal, and to be comfortable with both the terminology and the underlying concepts of forex trading. Books, webinars, video tutorials and study courses can help, but you can learn the most by working with an experienced trader until you feel confident enough to go it alone.
What drives the market?
Your forex education doesn’t stop there, however. Every day is a school day, as you learn to predict trends and to understand the underlying forces that drive the currency market. Being able to see patterns and construct models of how they will behave is an essential skill. You can follow the forex news commentary by Forextraders.com to see how the world of politics, economics, cultural shifts and even weather can affect the value of different currencies.
It’s worth noting the old chaos theory standby that when a butterfly flaps its wings it can cause a hurricane on the other side of the world. Small changes can lead to significant alterations in currency value, and with enough leverage this can mean big profits or big losses for you.
What are the pitfalls to look out for?
The number one beginner’s mistake in forex trading is risking too much, too soon. Ideally you shouldn’t have any more than 10% of your capital invested at any one time. Only invest money you can afford to lose. Similarly don’t take on too much leverage early on, as if your instincts aren’t sound you could end up significantly in debt.
Self-discipline is the key to successful forex trading, and is something you need to develop. Remember that it is an investment tool and not a get-rich-quick scheme. Treat forex trading as a business like any other, one that requires hard work and long hours andwhich will only generate real profits over the long term. Be prepared to lose money initially, but minimise those losses as much as possible while protecting your profits.
Where should you start?
Choose a trading platform that you’re comfortable working with and open a demo account. These are usually free and allow you to practise trading without risking any money. Of course you won’t be making any either, but the point is to let you try out different strategies and learn the ropes. It’s advisable to trade on a demo account every day for at least a month before trying forex trading for real.
Summary
- Do your research
- Remember that the markets are more complex than you think
- Learn from your mistakes
- Be disciplined- don’t risk too much and don’t let your emotions guide you
- Start with a demo account, take it slow and think longterm
By following these principles you should find out if forex trading is for you and whether you can turn it into a successful business.
