Starting off in forex trading
In the world of financial trading, there are myriad opportunities, all offering a unique blend of benefits and drawbacks. Foreign exchange (forex) trading, as a result of the liquidity of the global market, is one area that offers the significant potential for traders to profit. For beginners, however, the various nuances of the market can be intimidating and lead to costly errors.
Forex trading involves trading against the relative performance of a pair of currencies, such as the rand and the US dollar. A simple trade might involve buying dollars in anticipation that the rand will depreciate against the dollar. Converting back to rands would yield a profit for the trader.
By using the principle of leverage, trading with more funds than the trader has allows for much higher profits, but also increases the risk associated with the transaction, as losses as well as profits are amplified.
Because of these risks, Justin Grossbard, Director at Compare Forex Brokers, explains that the choice of trading platform is critical. There are a number of different trading tools available, each with its own strengths. “Depending on your knowledge of the market and the type of trader you are, you’ll benefit from choosing a platform that suits your trading style.”
Pick the best platform for you
He explains that some options offered by trading platforms include the ability to switch between forex brokers, copy the trading patterns of other users, use automation tools and conduct research. Some are optimised for mobile devices, suiting those traders without access to a computer or who want access anywhere, anytime.
Grossbard comments that there are different trading styles depending on the nature of trading that they want to do. “Some traders prefer to have complete control of their activities, manually opening and closing positions; others prefer a more automated approach, setting up a set of criteria and allowing the platform to take care of the rest; while another strategy is copy trading where a trader can set their account to copy trades by other traders, trusting their skill and track record to deliver the results.”
In terms of platforms, there are a number of options and Grossbard highlights some of the best options for beginners:
- MetaTrader 4 and 5: MetaTrader 4 offers beginners a simple and easy-to-use platform. This is one of the most popular platforms. Its global reach and wealth of options allow traders to take advantage of additional functionality as they become more familiar with the market. MetaTrader 5 provides a more sophisticated tool offering both forex trading and the ability to trade contracts for difference (CFDs), while leveraging the strengths of the underlying platform.
- eToro: The power of this platform is the ability to copy other traders, in addition to manual trading capabilities. By copying the tactics of more successful traders, it’s possible to learn the ins and outs of the market while benefiting from the experience. As your confidence grows, you can take more control of your portfolio and leverage your newly gained understanding.
- cTrader: For those who are familiar with the market and the nature of trading, cTrader offers sophisticated tools and the automation capabilities. This offers traders greater control over their trades, opening the potential for greater returns.
In conclusion, the platform a trader chooses will impact a trader’s success, with each software having strengths and weaknesses. With automated trader (AI) now accounting for the majority of forex trades, software evolution is the key to the sector for the current decade.