Forex trading can be a complicated area for beginners as well as for experienced traders due to the complexity involved in it. Just like any other area of investments, the lighter you consider it, the lighter your pocket will weigh.
Forex trading investment plans usually imply long term position trades where traders plan to invest in some currency and hold trades several weeks or months. However, there are many ways for strategizing forex trading investment plans like tracking trade trends, day trading, or looking for fundamentals in trading; a trader can mix and match to attain investment targets. In practice, traders can have a long-term goal, or it can also be a frequent day trading in currencies or indexes as well.
In a broad look, investing in forex for beginners implies deposit money at forex brokers, start demo trading, learn from books technical and fundamental analysis, and then start to trade on live accounts.
It all depends on your knowledge, skills, requirements, and willingness. Here are a few strategies to invest in forex for beginners.
Follow Trends on Regular Interval
This is the best way in which you can learn to trade currencies by analyzing, tracking, and following daily or weekly trends. The forex market is highly volatile as a lot of events across the globe impact various currencies, i.e. the U.S dollar can hike if the Federal Reserve cuts the rate or a war in Iran can diminish its value as well. So, it’s highly sensitive to happenings around various countries.
You can have a close look over daily or weekly charts to notice patterns in the forex market. The fascinating thing here is that even a small trade or move can have a larger impact in terms of profit or loss. It’s important that you stay consistent with your trades and notice the changes; just set a suitable stop as your target, and you are good to go!
The Art of ‘Carry Trading’
Trading is an art, and to excel in it, you have to practice. You can include carrying trading in your forex trading investment plans. When you buy high-interest rate currency against a low-interest-rate currency, it creates a case of carrying trading. To simplify it, let’s take an example.
Leila is a currency trader and likes to include carry trading in her investment plans. She buys the GBP at 1.1250, which means she would get 1125 U.S dollars for 1000 pounds. Now, USD is a high interest-paying currency that pays interest of 0.05 percent, and GBP is a low-interest rate currency having an interest rate of 0.01 percent. Leila doesn’t trade the currency, but due to carrying trading, she would receive the interest income at 0.04 (0.05-0.01) percent on her investment every day. (Note: Interest rate changes every day and so the interest income, it can also lead to paying a certain amount if your high-interest rate currency switches places with low-interest one. This example is simplified for a better understanding.)
A great thing about this strategy is that as a trader, you don’t have to do actual trading every day, as the interest rate does the work itself. You also get leveraged as per the size of your trade. Though, keep in mind that as the profit can be larger, the losses can be deeper as well.
Carry trading is prone to various challenges like frequent change in interest rates, global events and their reactions, and your risk-taking capacity. If the events are positive, you may enjoy profits, but the downward times can bankrupt you as well.
Learn Day Trading
If you want to learn to invest in forex as a beginner, you have to be aware of the fact that the forex market is dynamic and vibrant.
It operates 24 hours from Monday to Friday. There are various times for various exchanges.
- London- 3 a.m. to 12 p.m. (noon)
- Tokyo- 7 p.m. to 4 a.m.
- New York- 8 a.m. to 5 p.m.
- Sydney- 5 p.m. to 2 a.m. (midnight)
So, you have to be specific about which exchange you want to trade. You can also conduct your technical analysis for currencies through candlestick charts and patterns and leverage them in your investment plans.
Go after Fundamentals
Fundamental investing is a well-known concept in the world of investment. It requires a trader to look deep into the value-adding and long-term factors rather than technical and short-term factors. If you are a trader who likes to avert the risk, fundamental forex trading can work best for you.
While traders look after charts and patterns in technical day trading, in fundamental trading, they look for broader prospects like macro-economic situations. It weighs more on the long-term gain as it involves a long-term approach to evaluating the economic conditions of different countries.
The Bottom Line
As a beginner wanting to invest in forex, you may find this field tough in the initial stage, but with practice and willingness, anyone can do it. If you are afraid of losing money, you can also opt for practice forex accounts available online that will give you the same experience, but you won’t gain or lose any real money. As a beginner, you have to understand that things take time to work, and there is nothing that will make you rich overnight. You have to spend your effort and your dedication, if you want to succeed and earn money that lasts.