Which are the best ways to trade forex as a newbie? Discover the many different avenues for trading with limited experience.
The forex trading market isn’t kind to those with limited experience. It’s a stark reality that many beginner traders lose money as they learn the ropes. A key contributor is a lack of preparation, where newbies underestimate the level of complexity involved.
Fortunately, there are many different ways to prime yourself for the mighty battle. Let’s explore all of them here.
Run on a Demo Account
A demo trading account is a natural stage for first-time forex traders. Its purpose is to simulate live trading as closely as possible using virtual funds without the financial penalty of using real money. It’s a useful environment even for experienced traders to experiment with different manual and automated strategies. Demo accounts are also necessary for testing a new trading platform to ensure perfect navigation and execution.
Despite the obvious advantages, demo accounts have some drawbacks. First, they don’t accurately reflect the real markets 100%. This is due to variables like forex slippage, which only occurs during live trading.
Another downside is that they can offer a false sense of one’s trading capital. Often, demo traders come with seemingly unlimited account balances. Ideally, new traders should fund with more realistic amounts, setting and sticking to strict budgets.
In addition, new traders can stay for too long on demo only to fail when trading live. While there is no unanimously agreed period, it’s good to remain in the demo stage for at least a year. However, the key is to transition steadily into live trading, beginning with using a small account.
Thus, demo accounts are critical for beginners who want to test the turbulent waters of forex trading.
Trade With a Small Account
While trading on a demo account is certainly beneficial, many beginner traders struggle with the transition from demo to live trading.
However, traders can do themselves a massive favor by starting small, even if they are confident about their abilities. The golden rule is to fund your account only with disposable income, i.e., money you cannot afford to lose.
Since it is highly possible to make a few mistakes when you start trading for real, it’s highly recommended to use only a small fraction of your money at first. Once a trader uses their hard-earned money to trade forex, a massive psychological shift happens.
Slowly build up your equity curve so you are able to re-invest with greater assertiveness. A key tip with trading small is using a cent account. Here, traders can open lower position sizes than a standard account.
Copy Trade
Copy trading has become quite prominent over the last decade. It is a passive form of investing in currencies, appealing to those who prefer to avoid the challenge of self-directed trading.
This is a system for automatically replicating the positions of an expert trader or strategy provider on a dedicated platform. In doing so, it benefits users of all experience levels. Those with no trading knowledge and existing traders can profit from the efforts of others. In the process, both parties save a lot of time while learning much about the markets.
Copy trading also provides an avenue for diversification for all those involved. Users can copy many people at once, while strategy providers gain another source of income based on commissions.
Needless to say, you are only as good as the person you’re copying. Self-directed trading still presents regular financial risks. Therefore, it’s not a route suitable for everyone and must be exercised with caution.
Join A Trusted Community
While speculating in FX is generally a solitary practice, newbies may benefit from joining a trusted community. Whether we consider forex trading in Singapore, the United Kingdom, or America, Learning from experienced traders from different countries presents many alternative and fresh perspectives.
Platforms like Babypips, Forex Factory, and Reddit (specifically the ‘r/forex’ subreddit) are examples of thriving forex communities. They are welcoming of newbies who are free to ask any question, including the most obvious ones.
Manage Your Risk
Trading forex consistently revolves around balancing risk and reward. The best traders have mastered the art of engaging in trades with the highest profit potential while losing as little as possible.
Some of the religious risk management principles in forex include:
- Conservative size for each trade (not risking over 1–3% of your account per trade)
- The use of a stop loss to prevent large, uncontrollable losses
- Utilizing an ideal amount of leverage
- Viable trade management where you best protect your profits
- Having a risk-to-reward ratio of at least 1:1
- Keeping an eye on high-impact news events or economic releases
- Managing emotions
Appreciating The Road to Forex Mastery As A Beginner
If it were easy, everyone would be doing it — a fitting summary for the forex market. So, it’s crucial to begin the journey most productively through avenues like demo trading, copy trading, trading small, and joining a trusted community. New traders can appreciate and challenge themselves in the labyrinth of mastering the trading of currencies.
