The foreign exchange market is the largest and most liquid financial market, offering investors scores of diverse opportunities. Forex trading exists in the following forms:

  • Spot markets involving immediate delivery and ownership of the traded assets
  • Currency swaps
  • Futures and forwards
  • Options
  • Various derivatives

Unlike most commodities, currencies are easy to own, handle, exchange, and store. The factors that impact currency rates are numerous and diverse. They range from tourism, geopolitical outlook, national economic performance, economic policies, and interest rates to forex market supply and demand.

Why Investing in Currencies is a Good Idea

Investors use forex exposure to hedge against interest rate risks, exchange rate shifts, fundamental shifts resulting from geopolitical events, and diversify their portfolios.

Investing in Currencies for Hedging Purposes

Currency traders can lock in exchange rates through the forwards and futures markets. By doing that, entities with exposure to the fluctuation of currency rates, including investors, speculators, producers of goods, etc., can protect themselves against unfavorable future exchange rates.

Investing in Currencies to Speculate

Whenever the value of one currency increases or decreases against another, opportunities exist for savvy traders to profit. Currencies are always traded in pairs. Therefore, whenever one expects the value of one currency to drop, that same person can bank on the value of the other currency rising.

Trading Currencies is Risky

Although it may look like a simple and safe way to profit from market movements, currency trading is neither simple nor safe. Few forex trading instruments are standardized. forex trading itself is an unregulated activity in many parts of the world.

Retail traders don’t have access to interbank currency trading with its industry-imposed regulations and protection. Small traders often fall into the trap of trading with partially regulated forex dealers and brokers, who have no qualms about trading against their clients. Some of these brokers won’t hesitate to re-quote prices if it serves their interest. Governments don’t fully regulate such activities.

How to Invest in Forex Trading and Not Lose Money

Retail traders should do their homework and find a reputable forex broker that won’t trade against them or re-quote prices. How can you find a reputable broker? And how can you make sure your forex trading venture does not end in a fiasco?

  • Look for a brokerage that is a regulated by The Financial Conduct Authority (FCA) if you are in the UK. Trading with such a broker makes sense even if you are not in the UK. But you should know that wherever you live, your country has competent authorities that deal with forex brokers.
  • Take advantage of practice accounts. By using a practice account, you can get the hang of opening and exiting positions. In addition to avoiding order entry errors, you can also gauge your ability to generate profits.
  • Avoid overreliance on technical indicators. Forex trading platforms try to implement as many technical indicators as possible to one-up their competitors and impress their clients. Keeping technical analysis simple by not loading your charts with indicators is how you can improve your chances of making profitable trades.
  • Learn when to get out of trades. Seasoned traders say that it matters little when you open a position. Knowing when to close it makes the difference between profits and losses. Learn how to manage risk.
  • Start small and build your way up. As useful as practice trading is, it cannot hold a candle to real trading. Make it your goal to build up experience and treading skills before aiming for significant profits. Do not underestimate the impact of slippage and emotions.
  • Don’t go overboard with leverage. Using leverage may be tempting for some, as it increases the potential profits. It also boosts potential losses, however. Use leverage reasonably to take advantage of its upsides.
  • Consider investing in forex trading a business. Such an attitude may help you detach yourself emotionally from the potential outcomes of your trades. Looking at trading as a business can tide you through short-term losses and help you remain focused on the long-term outcome of the venture.

If you want to invest in forex trading, learning to observe a constant emotional equilibrium is important. Develop a trading strategy that works, and be flexible about it. Don’t shy away from changing your approach if you deem it necessary.

Stay on top of your numbers and trust in mathematics. Keep your goals reasonable and achievable.

Learn the ins and outs of technical analysis, but do not underestimate the impact of fundamental factors.