Want to Really Make Money Trading Forex? Follow these 5 Tips
Forex trading is frequently marketed as an easy way to make a lot of money quickly.
16:10 27 November 2020
Now, this isn’t entirely true or false. You can make a lot of money by trading Forex, but even if it isn’t rocket science, it is also not that easy. Plus, Forex trading doesn’t get you rich overnight. It takes a lot of practice, patience, and consistency to become a successful trader.
The basic principle of trading Forex is pretty simple to understand. You exchange one currency for another, hoping that the price will modify in your favor. More specifically, in the expectation that the currency you have purchased will increase in value compared to the one you have sold.
So far, so good, right?
But really making money with Forex trading requires you to know and do more than just simply buy and sell currencies. It’s a process that takes time, discipline, continuous learning, and a diverse portfolio of investments.
Let’s dig deeper into what makes a trader successful and helps you make a lot of money with trading Forex.
1. Don’t invest more than you afford to lose
Sure, this one may sound inconsistent with making a lot of money because there’s a general belief that the more you invest, the bigger the results. Yet, while this may be true with other investment types, when it comes to Forex trading, investing more than you afford to lose may actually be the mistake that ends your career as a trader in just a second, for a while at least.
Trading on the Forex market comes with a lot of risks, and losses are expected to happen sometimes. So, with this in mind, make sure that whenever you trade, you don’t invest more than you can afford to lose.
Before entering a trade, ask yourself the following” if I lose the money I invest in this trade, will I experience financial stress?” If your answer is “Yes,” don’t invest that amount of money.
Here’s the thing: if you invest more money than you afford to lose, you get yourself out of the trading game in no time, with no chance to win a minor lost amount of money back.
2. Diversify your portfolio
Among investors from different industries, there’s a well-known saying that you must also keep in mind:” never put all your eggs into one basket.” The eggs here represent currencies, and the basket is, well, your investment portfolio.
Having a diverse investment portfolio helps you learn more about different investment strategies and currencies. But, more importantly, it is a safer strategy to earn a profit when you trade Forex.
Here’s the deal: if you invest in a single currency, the potential to win a more substantial profit is significantly higher. However, so is the risk of losing more money, if not even bigger. Why is that so? Well, the Forex market and the value of currencies are influenced by a number of factors, including political, economic, natural disasters, and many others. So, if the only currency you invest in suffers a devaluation because of one of these reasons, if you don’t sell before that happens, you’re losing money. However, the chances for all currencies to experience devaluation at the same time are pretty much inexistent. So, even if one currency might take a hit, you still have the other investments in other currencies to bring you a profit. Makes sense, right?
With this in mind, make sure you have a diverse portfolio.
3. Be consistent
Consistency is key in pretty much anything you want to achieve, including making a lot of money from trading Forex. It’s very unlikely to make a single trade and earn enough money so that you feel like it’s time to take a step back. To gain significant amounts of money from trading currencies, you need to be an active and consistent trader.
But, being consistent with trading Forex doesn’t simply mean to make a lot of trades. It also implies focusing on trading, not just on making money, because this is how you learn to make better trading decisions. And it also takes to be organized and disciplined in the sense of not making a lot of trades one week and then give up because you see no results.
Consistency with trading Forex is also about using the right tools to trade, starting with choosing the right broker that offers these tools. For example, one important technology used by all active and consistent traders that became an industry standard is the Financial Information Exchange API. This technology allows a seamless flow of real-time data between all market participants, including traders, regulators, and liquidity providers. For this reason, this FIX API technology reduces trade-related latency.
So, when choosing a Forex broker, besides looking for the obvious benefits like digital security measures, the reliability of their platform, or their customer support service, also look for brokers that provide the FIX API protocol.
4. Control your emotions
Another highly important tip to follow to make money with Forex trading is to trade methodically, not emotionally.
There’s a good reason why people say that trading currencies is not for the faint of heart. As a trader, you experience plenty of emotions, from panic to hope, joy, and disappointment. So, what makes a good trader is the ability to control all these feelings and not allow them to interfere with trading decisions.
For example, one of the most commonly experienced emotions among traders is FOMO. Yes, traders often experience the fear of missing out, which can make them irrationally buy or sell currencies, typically making a bad decision because they fear that they might be missing out on a coin’s current value.
Panic and stress are other common emotions experienced by traders after losing a trade, which may encourage them to make a trading decision without thinking it through in the attempt to win back some of their money.
Joy, experienced after winning a trade, is also not an emotion you should allow to dictate your investment decisions because when you are overly excited about winning, you may overlook some of the risks involved in a trade.
5. Keep a trading journal
Successful traders have one more thing in common: they never stop learning. The Forex market and all the things related to it, like strategies or trends, are constantly evolving and changing. So, to be successful, you must always stay informed and educated.
But, besides that, the best lessons also come from your past trading mistakes. That is why we recommend keeping a trading journal so that you can look back at your trading and see where you went wrong so that you don’t make the same mistake twice.