The foreign exchange or forex market is a risky venture that was once the domain of institutional investors and banks. However, individual investors can now make the most of this venture with the help of online brokerages.
Forex trading involves speculation on the value of a currency in comparison to another and is mostly conducted via ‘margin trading’. Margin trading refers to a security deposit worth a small sum of the total trade value which is required for trading.
The forex market is one of the riskiest investment instruments because a majority of products in this sector are highly leveraged. In other words, you are responsible for the full trade amount despite margin trading. Furthermore, currency exchange rates, which are very volatile, can make you lose money if you aren’t careful and insightful enough
It is for these reasons that you must invest smartly from the outset itself. Here are three tips to help in this regard:
- Research, research, and more research
Different risks are associated with different forex trading products, so you must read every product disclosure statement before going ahead and making an investment. Also make sure that the provider you will be dealing with is licensed and certified. If the provider does not have a license, you will need to find out whether it is regulated by the overseas authority in the country or base of operation.
- Stay away from overleveraging
Leveraging is a requirement for profit making in the forex market, but many dealers encourage clients to indulge in high margin trading. This means that many traders control large sums of money, with less cash on the table. Although this seems tempting, the fact is that the exchange market is unpredictable. Losses can become magnified. Many brokers also use high leverage to get more earnings via the spread income.
- Choosing the right courses and programs
Forex trading courses are aplenty, but the truth is that no one seminar or ‘toolkit’ can predict foreign currency movements. Avoid companies that make lofty promises by promising fast and easy money. Consider seeking the advice of a licensed adviser.