OCT 9 – Current research suggests that more than 15 million individuals (and companies) are actively involved with the Forex trading marketplace. Interestingly enough, this roughly represents just over one per cent of the global population.
It is clear to see why Forex investing attracts so many on an institutional level. Relatively liquid positions, the ability to offset inflation, and flexible exit strategies are some primary examples. Still, it pays to develop an approach that will be able to mute the inherent risks that have partially come to define the Forex ecosystem. Let’s examine what the industry experts have to say.
Reduce Slippage
Slippage is directly associated with market volatility. Slippage is defined as the disparity between the predicted price of a position, and the actual price at which a trade is executed. Even normal stop-loss orders might not protect an investor from slippage; especially during unstable conditions.
One way to avoid slippage is to use guaranteed stops when opening a trade. These will ensure that the position is closed at the exact specified price; lessening the chances of incurring a last-minute loss.
Larger Currency Pairs
Learning how to trade Forex pairs will also involve the ability to monitor major market makers. We are referring to the specific relationship between benchmark currencies, and here are the most popular pairs:
- EUR/USD
- GBP/USD
- USD/CHF
- USD/JPY
These assets account for roughly 80 per cent of the total Forex volume, and they are excellent indicators when determining the state of the global marketplace.
Develop a Conservative Risk-to-Reward Ratio
It is impossible to eliminate the inherent risks of Forex trading. Indeed, the fluid nature of this ecosystem is actually one of its most attractive qualities. There are nonetheless plenty of ways to reduce your exposure at any given time. One of these involves the risk-to-reward ratio.
Professionals agree that a 1:2 ratio is the most prudent. For example, let us imagine that a trader is willing to part with $10,000 dollars to turn a profit of $20,000 dollars. This leaves an ample margin for error, and will limit potential downside losses.
Follow Industry-Related News
Becoming adept at Forex trading involves much more than the ability to monitor the relationship between currency pairs. Success relies heavily upon news and economic data. Here are some of the most important indicators that inevitably affect the currency marketplace:
- GDP
- Inflation rates
- Rising and falling interest rates
- Non-farm payroll (NFP) data
- Unemployment
- Durable goods orders
- Business sentiment (confidence)
Keeping a close eye on the latest updates will enable traders to remain well ahead of the curve.
Buy and Hold?
Many articles discussing the nuances of Forex trading automatically focus on short-term trading strategies. However, we need to remember that buy-and-hold positions are also possible; sometimes representing a year or longer. This approach may be preferred by institutional investors, as they are associated with a greater degree of stability. Ideally, a well-balanced Forex portfolio should contain both short- and long-term positions.
Understand Leveraged Trades
Some Forex traders are drawn to leveraged positions, as these require only a fraction of the total value of a holding. While it is indeed tempting to obtain this level of market exposure, leveraged trades come with their own set of risks. The main concern is that losses can quickly outstrip one’s initial outlay. While there is nothing wrong with leveraged Forex trades, these should only be executed after you have gained a significant amount of experience.
Work with the Best
Advanced trading platforms have opened up a wealth of opportunities for those who wish to become involved with Forex trading. However, it is just as prudent to stand upon the shoulders of giants. Working in tandem with a multi-asset wealth management firm will provide unfettered access to expertise that would be difficult to obtain otherwise; providing you with a massive edge. As these specialists can tailor their services around the needs of their clients, you can likewise access a host of personalised solutions.
Although there is no “crystal ball” when it comes to Forex trading, it is still possible to bend the odds in your favour. Adding another “string to the bow” is an approach that should never be taken for granted.
