Forex trading is growing increasingly popular in the country with more and more foreign and Ghanaian online brokers advertising platforms to trade currencies and CFDs. I signed up with a local broker to try my hands at trading and based on my experiences I’m sharing these five things I wish I knew before I started.
1. You’ll have to make the time. Trading is a full-time job. Especially if you intend to do your own fundamental and/or technical analysis before entering into positions instead of subscribing to forex signals. If you have a lot at stake, check the economic calendars, read the financial news, have a justification for each trade you make, make records of trades and learn from them. If you can’t make the time, don’t put in money you can’t afford to lose.
2. It’s risky. Like really. Probably the only industry with more warnings than forex brokers is the tobacco industry. Due to the fact that brokers give you leverage (allow you to trade with borrowed money) your losses may exceed your initial capital. Yes. Not only can you lose all what you put in, you could lose so much that you now owe the broker. That’s why forex trading for a beginner should take a safety first approach.
3. It’s nerve-racking. Trading, especially day trading, tests your nerves like few things can. Seeing yourself losing money in real time is difficult. You have to know how much you’re willing to lose before you give up on your trade becoming successful. More importantly you should not try to revenge your losses. It is very tempting to think that you can immediately make back the money you lost on a trade but keep your emotions in check because you will probably end up losing more.
4. Be comfortable with your broker and trading software. I started practice trading with one broker and software but I switched to another broker when I started trading live (trading with money). That was a mistake. Before you start practice trading with a broker be sure it’s someone you can trade live with. Take the time to understand their charges, deposit and withdrawal charges and other important information about them.
5. You’re not unique. You may very well be an exceptional trader but you can’t keep up with all the things that move currencies or commodities one way or the other. There are very well-resourced institutional investors who pick opposing sides of a trade based on their research. If there was a way to really know how the market would move then they should be roughly on the same side. Hedge funds and investment banks get it wrong all the time. So I think a little bit of caution about your abilities is in order. Also by the time you’ve heard a bit of news others would have heard and taken positions long before you. As if all those odds aren’t bad enough, people are trading on information leaked before the rest of the world sees it. Just be cautious.
Of course there’s more you need to know but this is a start. I will certainly have benefited from a post like this before I started trading and I hope you find it useful too. Let me end with one of my favourite quotes: The market can stay irrational longer than you can stay solvent. – John Maynard Keynes. Happy trading!