You won't believe these 10 tips forex traders wish they knew before they started

Introduction

The foreign exchange (forex) market is by far the world’s largest financial market, recording over $5 trillion trade volume daily at an international scale. The market trades for 24 hours, has a very low-entry bar and so it allows traders across the world to transact. This accessibility means that while profitability is possible, losing money is also easy.

An examination of some of the most successful forex traders today would show that a combination of audacious moves, careful analysis, and self-confidence have netted them huge profits. George Soros, famous as “The Man Who Broke The Bank Of England”, made over a billion dollars in profit in a single day (Sept.16, 1992), while others like Bill Lipschutz turned $12,000 to $250,000 in his first-ever trade. Yet as much as there are success stories, there are also stories of losses and failures that are, for the most part, untold.

It is very important to remember that successful forex traders were once beginners, starting out in a highly risky, but profitable, business. It is, therefore, important to examine the lessons (and wisdom) of experts, to learn from their mistakes and potentially avoid them. By reviewing the lessons shared by some experts, we bring you the top ten tips experts wished they knew as beginners:

TIP 1: Learn, learn and then learn some more

With the proliferation of trading success stories, it is easy to get carried away and assume that trading is a sure-fire way of making thousands - or even millions - in profit. It is, but it also isn’t. Forex trading, like any other business, is an entrepreneurial effort that requires critical understanding, familiarity, appreciation, and analysis that can only be acquired through in-depth studying and learning of currency markets, trading, tools, geopolitical issues, economics, and, even, trading terminologies.

Beginners, in hopes of earning profits, fail this first - and indeed, the basic - tip of trading: extensive learning. To avoid losing money, every expert trader knows that learning about the market is a critical step towards continuous long-term profit; they know that the first few months (even years) are critical towards guaranteeing a long term success if one focuses on learning.

TIP 2: Slow and steady wins

Theoretical and practical experiences often go together. While theoretical learning provides a basic framework to learn, hands-on practical experience goes a long way towards providing further holistic understanding. However, in trying to get practical knowledge, it is advisable to start small and slow, bearing in mind that slow and steady is a tried and tested strategy towards success.

Without a doubt, forex trading has historically been defined by the bold, risky (and often legendary) moves by famed traders. The undeniable truth - and any expert trader will tell you this - more people suffer loss than gain. It is, therefore, imperative that you start slowly and small, learning and growing. This brings us to our next point: mistakes.

TIP 3: Learn from your mistakes

An integral part of growth - regardless of sector or what you are doing - is mistakes and failure. In fact, Richard Branson puts it better when he wrote that “Anyone who’s achieved great success in business knows failure is not a bad thing. On the contrary, failure enables you to learn, grow and perfect your methods. In fact, failure is one of the secrets to success, since some of the best ideas arise from the ashes of a shattered business.”
Keen observation and analysis of past mistakes will not only give you an awareness of your own limitations as a trader, but it will allow you to confront your shortcomings, analyse missed opportunities and know the necessary growth areas. To do this ensure to record all your profits and losses, and carefully study them for feedback.

TIP 4: Methodology

By learning, starting small and slowly, and learning from their mistakes, traders begin to find a unique pattern that works for them and yields greater profit, that is approaches that allows them to stay nimble and effectively trade in an unpredictable market.

Experts know that there is no standard handbook that outlines when, where, and how to trade; or a standardised outlook on the market. However, this understanding of the market comes from experience and methodology: knowing, for instance, that the different market volatilities might work well for some strategies but not for others.

Stick to your own methodology - this is easily said than done considering the noise and echoes and gimmicks that surround us. This means that for a forex trader, developing a methodology begins with asking simple - but, ultimately - difficult questions like which currency is right for me? What strategy do I deploy for my trades? What is my risk tolerance level? Developing a method comes hand in hand with knowing yourself.

TIP 5: Use volatility to your advantage

Always bear in mind that the financial market is unpredictable, especially when you are trading on financial instruments, like currencies, that are volatile. In fact, the investor, George Soros, puts it better when he stated that: “The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the markets.”
Rather than having a specific view of the market, it is better to be open-minded and map out multiple ways the market could go. Always be prepared for any outcome, and also have in place strategies on how best to maximise any opportunity that presents itself.

TIP 6: Understanding timing

Every expert forex trader knows very well that timing is everything and that, in some cases, patience is a very profitable virtue. Having an understanding of this principle comes directly from mapping out your own methodology and rules: that is, as stated earlier, knowing what works for you. This is best exemplified by how experts differ in trading times: while some favour times when the different trading markets overlap raising the volatility levels and trading volumes, others prefer more quiet sessions with less risk.

TIP 7: Losing money can be ok

Losing money is an inherent part of currency trading - especially as a beginner - and it is a fact that most people find it difficult to accept. But with more practise, learning and self-awareness, they become better and lose less money through proper money management techniques. While experts are aware that they can make a profit at any price point, they are also keenly aware that strategies (or, at least, fail-safe techniques) must be put in place to avoid certain levels of loss (a stop-loss) and protect profits.

TIP 8: Manage risk

Just like loss, risk is inherent in forex trading - and often your appetite for risk determines how much profit you generate and, conversely, the loss you suffer. It is why risk management - and often forgotten part of forex trading - is an important part of the currency market. Understanding risk and how to manage it is something most beginners do not take into cognisance at first.

However, over time and with more experience, they realise that protecting downsides is perhaps more important than just profit-making - hence why risk management planning is very important.

TIP 9: Emotional control

Unsurprisingly, forex trading elicits different emotional responses and has an impact on your mental wellbeing. From fear, anxiety and overconfidence, the currency market brings out reactions that run across the range - especially in the event of a loss or a string of wins. Yet, beginners (and even experts, sometimes) often do not take into cognisance the emotional/mental effects of trading and how they affect the decision one makes. Trading requires a dispassionate approach: keeping emotions at bay in order to perform a holistic analysis and carefully plan one's strategy without having emotions clouding their judgments.

TIP 10: Diversify your portfolio

So now you’ve learned all about the market, picked a currency, and designed strategies. Perhaps, you’ve made a few successful trades and are more knowledgeable about the system. The most prudent step to take next is to diversify your portfolio - in fact, diversification should be an earlier consideration. As a money management strategy, diversification reduces your risk and protects your trading account.

Final word

Keep all of the tips above in mind when trading forex online. Also be sure to trade at a safe, licenced and reputable platform - our list of top forex brokers is a great place to start.

Compare Top Forex Brokers

NamePlatformRegulated byRatingProceed
AvaTradeAvaTradeMT4, AvaOptions, Mac/Web TradingASIC, CBI, BVIFSC, SAFSCA, FSA, FFAJ10
AvaTrade Review
FXTMFXTMMT4 - mobile, web, multi-terminal FCA, FSC, FSCA, IFSC, CySEC9.9
FPmarketsFPMarketsMT4, MT5, WebTrader, IRESSASIC, CySec, FCA9.8