What is the forex market?
The foreign exchange market, also called forex or fx, is worldwide the largest and most liquid over-the-counter financial market to trade currencies on. It operates through a global network of banks, private entities and corporations who trade one currency for another. With no physical location and central off-exchange, the forex market operates nonstop during 24 hours, spanning through all main financial markets.
Forex trading is performed in currency pairs, many of which Liteforex (ex. Mayzus) provides you with.
The forex market can be considered unique due to its huge trading volume, global dispersion, the great variety of factors affecting exchange rates, the low margins of relative profit compared to other markets with fixed income, and the use of leverage that increases profit margins according to the account size.
Unlike the stock market that only operates during daytime hours, the forex market is characterized by nonstop operation (i.e. 24 hours a day except for weekends). This enables traders to immediately react to latest financial news rather than wait for the market to open, as is the case with stock markets.
As the most liquid market worldwide, the forex market includes central banks, currency speculators, governments, corporations and other financial institutions. Thus forex combines trading, investment and speculative operations of exchanging one currency for another according to specific rates.
The foreign exchange of currencies dates back to ancient times, but the modern forex market developed during the 1970s, when countries gradually switched to floating exchange rates from the previous exchange rate system. As a result, central banks gained a more powerful influence over national currency rates and national economies.
Every country’s economic index depends on the economic development of the other countries, which influences the price of the national currency as compared to all other currencies. This is the main reason why forex rates change. The major currencies traded on forex today are USD, EUR, JPY, GBP and CHF.
Trading on forex markets involves substantial risks, including possible complete loss of principal investment as well as other losses and is not suitable for everyone. You are the best judge as to whether forex trading is appropriate for you regarding your financial situation, investment experience, risk tolerance, personality, etc.
As long as you are trading on a demo account and no real money is involved, you may be convinced that there is no risk, either. Switching from a demo account to a real trading account is easy and may seem risk-free, nevertheless after the first live trade you may feel unsure about when to take a profit or cut your losses. This is the first sign of trading psychology.
Like every other activity, trading also has its psychological background. As it is mostly emotions that drive beginner traders to unsuccessful actions, mastering your emotions is the key to success.
Knowing the basics of trading, choosing the right trading tools, watching the market, being patient but also alert must be complemented by well-balanced emotions. Understanding the psychology of trading and knowing your strengths and weaknesses are key issues if you want to succeed as an online trader.
The urge to get rich instantly can spoil even the most serious attempt to succeed. Though this is a strong motivating factor to many traders, greed is an emotion that must be controlled when trading.
Fear also frequently affects trading operations. It mostly occurs with beginner traders who have gained trading experience with a demo account and then start trading with a real account. Though they felt safe with the demo account as it implied no risks and they were trading with virtual money, they quickly realize that with the real account they have chances of actually losing money.
This is where hesitation appears and the fear to make any mistakes that may risk financial success. Overcoming fear can be easily solved if you keep a trading log, note down all simulated trades and compare them with the real trades. This gives you more self-confidence and a feeling of safety.
Don't get too sentimental when a trade won’t come off as you expected. Simply follow the "let go" rule: get it over with and start a new trade. Just like in everyday life, we sometimes win, other times lose, nothing is ever perfect. Don't forget to leave your emotions out of the game when you sit down to trade.
Patience and calmness are two top qualities needed in trading. Besides, being level-headed earns you a half-won trade. Many people think that sitting in front of a PC continuously and perform nonstop trading is the golden-paved way to becoming a professional. That should not be such a hectic process, though. It is necessary to wait patiently, follow your trading scheme and act when the optimal trade shows up.
Remember that whatever we do in everyday life is consciously or subconsciously influenced by our personality. That applies to trading, too. However, if you are aware of your strengths and weaknesses, try to make the best out of it: focus on your positive traits, rely on them and exclude all negative traits that may put your trading success at risk.
Getting started with a demo account
As the name suggests, a demo account “demonstrates” how trading can be performed. Opening a demo trading account is cost-free, it is based on virtual money and so it involves no financial risks.
Getting started with a demo account is the safest way to learn the tricks of the trade. There is no risk involved, you will not be faced with losing money and you can enhance your trading strategies at the pace you choose. Opening a demo account is a good opportunity to start using the trading tools Liteforex (ex. Mayzus) offers you and trade real time.
By trading with a demo account you can develop your trading plan and strategies that suit you best. You can try out several ideas and choose the optimal system that will later turn to your benefit when you decide to open a real trading account. At the same time, it enables you to test your trading strengths and improve your weaknesses.
The first step is to open a demo account with liteforex.eu and learn to use a trading platform. To start with, you can download MetaTrader 4, which is easy to use, does not require activation or a license code and installation only takes a few minutes.
The second step is to learn about the leverage, as forex trading is typically performed by using leverage, or margin. Forex leverage means that you can trade contract sizes that are much bigger than the amount you invest. For instance, with a leverage of 100:1 you put up $1 and you can actually trade $100.
Leverage is an excellent tool but it can also turn against you in case you don’t understand how it works. It is important to be aware of the difference (in this case, $99) which is actually a loan the broker gives you. Remember that you should not lose money on your leveraged trades. The golden rule is to never risk more than you can afford. Margin trading is a high-risk strategy through which you can buy more stocks than you could normally afford to buy, and if you conduct the trade correctly, you can make large profits. Read more about the Liteforex (ex. Mayzus) margin requirements here.
Before starting demo trading, learn how to read and interpret different chart types. Getting familiar with various time frames is also important, as they show you the market movements and trends.
Why Metatrader 4?
As a trading platform, Metatrader 4 is the ideal choice for automated trading and technical analysis.
Opening a trading account
Trading forex can bring you much excitement and benefit in case you have acquired the necessary skills and practiced accordingly. We strongly suggest opening a real trading account if you are already acquainted with the basics of trading and know the risks it involves.
In order to open a trading account, first you must sign up and register.
The registration process is fast as it only includes 3 easy steps.
At STEP 1 you will be asked to enter your basic details such as full name, email, country of residence and mobile phone number.
In case the details you submitted are valid and accurate, you will receive our email with the authentication code and the activation link. After receiving our email, you must click the activation link in it, which will direct you to STEP 2 or, you can enter the 5-digit authentication code included in our email.
Next you should provide further information needed for the security settings and profile details. If you don’t receive your email you can use re-send you the authentication email option.
STEP 3 consists of providing data necessary for opening a trading account. Here you can decide which trading account type you wish to open, select the account currency and forex leverage for your trading account, agree to our General Business Terms, and open your trading account.
The main rules of trading
Trading is an ongoing learning process that gives you new experiences at every step. You must be alert to market changes, follow the market trends and keep a calm head while trading. Finding the optimal balance between knowledge and the emotions involved in trading can make you a really successful forex trader.
Like any other activity we perform on a regular basis, effective trading is also based on a set of rules.
The main rule is to set up goals before starting to trade and have concrete objectives in mind that you can later measure and evaluate. Though your main goal as a trader is to make money, you should not ignore the fact that there is always a risk involved, and having high returns is also based on making plans ahead for draw-downs.
If you want to keep up a consistent level of profitable trading and not only close successful deals at random, you must have clear-cut goals. For instance, you can set up objectives in terms of developing new trading systems, making fewer mistakes in trading, or achieve a draw-down ratio. You should then follow up on the results of your original plan, compare them, draw the consequences and improve your strategies. An effective way for the follow-up is to keep a trading diary.
You should remain consistent with your trading goals and plans. To make the best use of your trading systems, take each trading entry, adjust the stops and close out each of your trades according to how and when your system says so. You must have a disciplined approach to trading and should be able to follow up with the factors that caused possible failures.
When you are getting a profitable trade, you may have doubts whether you should quickly close it and take the money, otherwise you may lose it. However, letting profits run is a rule to consider as trading basically consists of long periods of small winnings and losses followed by a big winning that balances overall profitability and trading costs. Cutting losses short is equally important: set up a minimum loss point before you enter a trade to know how much exactly you are risking on a particular position. You must have an exit price that alerts you in case you start losing on a trade, and at that point you should exit the trade before the loss gets bigger.
Making money at a steady pace with minimum risk, rather than getting rich too quickly with high risk, is a major rule in trading. Try to avoid risking too much of your capital on one single trade: once you lose it, you will most probably end up being unsuccessful at trading. It is advisable to risk 1-3% of the trading capital you allocate to a system on a trade. Calculate the size and difference between the entry price and the maximum stop price, together with the amount of capital you allocate to the system.