How to Make a Living Trading Foreign Exchange: Tips for Beginners
We hear this question all the time: can a person make a living from forex trading, enough that they can quit a full-time job and focus on trading instead? The answer is yes. Many people have made forex trading their profession and the source of income for their families. Like any livelihood, however, it takes a lot of work, studying, and discipline before someone can start generating enough income to live comfortably exclusively through forex trading.
As a brokerage company, Fair Forex has seen many traders progress from casual and passive to active and income-generating. Knowledge and instincts are the keys to succeeding in forex trading, but we can also point out a few more factors we’ve observed from successful traders.
Here are some tips on how you can make a living with forex trading.
Understand and Accept the Risks
Knowing that trading foreign currencies involves risk is one thing; accepting it is another. It’s the latter that emboldens you to take risks as well as manage them by creating a strategy. Your risk appetite will set your limit, but knowing that risks are necessary to generate returns can encourage you to go beyond your comfort zone when the opportunity arises.
Be Up to Date with Current Events
A lot of factors affect currencies: local economy, international economic climate, politics, natural disasters, even cultural trends. Although trading when there are major news events is far riskier than holding onto your positions until the climate has stabilised again, there’s value in keeping up with what is happening in the countries whose currencies you have stakes in.
Should extreme turmoil take place and threaten the current standing of the currency you bought, it’s crucial to react quickly when necessary so that you can optimise gains and minimise losses.
Develop a Trading Discipline
Economic markets are highly volatile. As previously discussed, many factors can have a detrimental or positive impact on foreign currencies. Those factors can change overnight. Major events with economic aftershocks can take place in just minutes. When these things take place, it’s so easy to get swayed by your emotions and make decisions based on gut feel.
Yes, instinct plays a role in forex trading. However, instinct is honed by years of hands-on experience and exposure to the world of forex. Without adequate experience, your instincts could be driven by emotions or biases.
When currencies fluctuate because of the volatility of many economies today, inexperienced traders become prone to making premature and impulsive decisions.
It is therefore necessary for forex traders to develop and maintain a disciplined trading approach. One way to stick to your established trading practices is to list down a checklist for making trading decisions during volatile times. It’s a simple method, but it helps to avoid losses (i.e., selling too early and missing out on higher earnings), overcome fear and build up your confidence when making crucial trading decisions.
Learn How to Trade Based on Sentiments or Expectations
As you become a more frequent trader, some best practices should become second nature to you. For instance, in line with the above discussion about the volatility of currencies because of unforeseen events, keep in mind the maxim, “Buy on the rumour, sell on the news,” (also “buy the rumour, sell the fact”) which basically means that if you’re interested in a currency, understand the market sentiment towards it and make your position according to that direction.
This maxim is also based on the fact that markets tend to move ahead of important economic data releases or major events because players are already making projections about the outcome. Once the event takes place or the data is released, traders compare the outcome with the initial projections and revalue the exchange rate. Their decision will be based on whether the outcome was better or worse than expected.
This is a good rule to stand by if you have reason to believe in a currency’s strength and want to invest in its potential by taking a long position (similar to investing in the stock market, where the substantial gains over time level out losses).
That being said, you also need to be vigilant as sometimes it is more prudent to “sell the rumour, buy the news.”
Choose a Reliable Broker Platform
Forex traders can only do as much as their platform will let them, which is why it’s crucial to choose a broker and trading platform that matches and can support your trading style and provide the data you need to execute it properly.
You can count on the versatility of Fair Forex’s platform MetaTrader 5, an industry-leading trading platform developed by MetaQuotes Software Corporation. Accessible on desktop and mobile devices, the MT5 is customisable and provides depth of market (DOM) analyses. We also offer some of the lowest spreads in the world. Lastly, Fair Forex has a stellar customer support program, giving clients free tips and access to professional traders.
When you have a good broker, a good platform, and a polished trading strategy, it will be possible for you to make a living exclusively through forex trading.
Choose Fair Forex as your broker. Contact us today.