5 Things to consider before trading Forex

Really like the concept of Forex trading? Wanting to invest in this market? Wait, we got you right! Here are a few major points one should consider before trading Forex. A glimpse through this article, and you’ll be hands–on with how to go about it.

1. Check off your Financial Goals first

Forex trading is undoubtedly highly lucrative, but also high-risk. With having a potential for high returns and an excellent instrument for immediate settling as well as international transactions – there is a lot that attracts one. But, it may not always be on the brighter side. It is essential to understand how forex trading is riskier than any other diversified nature of investments. Go for forex trading once you have your basis covered; as in paying off your high–interest credit card debts & sorting out retirement saving plans.

2. Do your Research

This may sound too basic, but this is the most important of all. Spend time researching the forex market and understanding the concept of how it works. A good practice is to take your preferred cup of coffee, sit down with a paper & pen and list down your potential investments. Next up, understand the value proposition and risks to evaluate the best choice. You can always use a copy trading app for better insights!

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3. Building up a Diversified Portfolio

As for expert investors, they always go for investments in multiple currencies. You may be inclined towards one or have a thinking that the other will pay off better. That’s common but a safe play is to have a diversified portfolio. Understand that some currencies are more volatile than others so it’s always a good idea to keep the investments scattered. This minimizes the risks of losses and increases long–term savings.

4. Keep a 5% Investment Limit

Don’t just put in all your money, keep an investment limit. As portfolios are little riskier, we have always known to limit their investments to just 10%. Applying this to forex is much riskier, hence just 5% of your portfolio investments must be dedicated to this. Hot Forex explains such matters in-depth!

5. Start with Fractional Lot Sizes

Are you familiar with the concept of Fractional Lot Sizes? Yes, or no! It’s perfect for beginners. Let us help you have an insight: you’re trading ‘lots’, which are groups of a specific currency. Some brokers will let you choose a specific amount. It’s all just a frame of reference for currency units. That being said, how far down you can go on trading size ultimately depends on your broker. Some will let you trade a single dollar if you want, and some brokers will let you go down to one-tenth of a microlot, or 100.

By George Rossi

George is the Chief Market and Broker Analyst at brokertested.com. Prior to being recruited by brokertested.com, I served SVS Securities as Chief Market Analyst for two years. Earlier, he joined Morgan Stanley in Nov 2013 as Research Analyst. Moreover, George is a well-rounded financial services professional experienced in fundamental and technical analysis, global macroeconomic research, foreign exchange and commodity markets and an independent trader.