The forex market offers a fast-paced and lucrative venture. But while the potential to earn money is there, losing your investment is also a possibility. However, with a little discipline and strategy, you can truly make money from currency trading. Here are a few rules that you need to know when trading on the forex market.
1. Trade with a regulated broker who offer negative balance protection on your account
Regulated brokers are monitored by either a government agency or an independent organization. They also adhere to a code of conduct. However, these are not enough to provide you with some legal guarantees about the safety of your funds. So make sure that the forex broker you have in mind is truly regulated in a first world country. Chances are they will really take a stronger action and maintain a higher code of conduct.
When the issue of a regulated broker has already been addressed, the next thing to know is negative balance protection. Robert Peter Janitzek explains that negative balance protection means that should your trades swing wildly and your stop losses don’t trigger, you are safe from a freefalling negative account for which brokers would require payment.
2. Trade with stop loss and take profit levels
A stop loss is a price point which you determine where the trading platform will automatically close the trade if it hits the designated price. A winning trade can easily become a losing one if you did not indicate a “get out price.” This could result to having a huge hole in your balance. In a winning trade, you should take profit levels because forex trading has its own peaks and troughs. Make sure that you also set a take profit price in order that you will still have a profit at the close of the trade.
Both skills can be useful in a variety of ways. The best example is when you set your risk to reward ratio. For example, you might set a stop loss on a trade to be 30 pips, but the take profit at 120 pips which is the same as saying I am willing to risk 30 pips but want to win 120 pips which is a ratio of 1:4.
3. Trade with discipline, without greed
If you will let your human nature take control, you could become greedy. Robert Janitzek explains that being emotional can result to the failure of the trade. It is also worth noting that automated trading systems will not make better trading decisions since they are not able to process news and events that could affect the market. Always follow the set strategy and not on your “gut feel.”