Forex Trading Good for beginners?
In this modern day of social media publications, many aspiring traders find themselves overwhelmed with the different, and often conflicting, information that promotes the various types of markets, within which a new trader can operate. From stocks to cryptos, forex to gold, oil to indices (and perhaps ‘green credits’ in the near future); each of these are credible markets for consideration, but they have their differences and present different requirements for new traders.
Yes, the forex market is good for beginner traders, as it is unique in the extent of flexibility it allows for traders to customize their approach to market participation, along various segments. Let us explore this further.
CHOICE OF SPECIALTY
Forex is one of a few markets that has several tradable assets within the broader network. This is a great feature as it provides an array of individual assets from which a beginner trader can specialise on a few.
The forex market operates twenty-four hours a day, Monday to Friday. This time structure is excellent for new traders who are somewhat pressed for time and have other life commitments.
Forex offers the flexibility of different account structures. For beginner traders with minimal initial capital, a micro account would be most ideal for live trading.
The forex market has very good liquidity and that lends favourably to different trading styles: from scalping to position trading.
How Can a Beginner Trade Forex
Many individuals start their trading journeys by opening accounts with brokers, and immediately commence with buying or selling. That approach is indicative of ignorance, and tends to yield painful and expensive outcomes.
In considering the ‘five generic categories’ of a beginner’s learning journey, once extensive effort has been dedicated towards the first two, and sufficient work has commenced on the third and fourth, the beginner may proceed with the fifth category by opening and making use of a demo trading account. This is very important.
Only after a certain period of demo account utilisation should the new trader commence with a live account. There are various brokerage firms across the world that offer different types of forex trading accounts (both retail and institutional variants). The choice of which broker to engage is yours to make: but always seek a broker that is regulated by, at least, one regional authority.
As time progresses and your account grows larger, it would be reasonable to have at least two brokerage accounts.
How Much Money is Needed to Start Trading Forex?
If this has been the focal point of your ponderings for some time, derive some mental calm from knowing that you are far from being the only individual with such confusion. In fact, many beginner traders face the same dilemma.
There is no universally defined minimum amount of money with which one may commence forex trading. Some individuals suggest $500 is needed, whilst some others declare that $1000 would be ideal amount. In reality, however, a more accurate amount for any given individual can only be reached after consideration of skill and experience levels, leverage available, your trading psychology, and some other variables. Let us explore these further.
One of the first elements of understanding a new trader ought to embed in mind is that many of the considerations in trading (such as theories, methodologies, etc) are subjective in nature: both applicability and outcome; that is to say what works for some individuals may not work for you. And the same applies to opinions surrounding the requirement of starting capital.
Many new traders are lured into opening trading accounts with miniscule amounts of capital (e.g., $100), simply because the broker deems it an acceptable minimum requirement. And some brokers would even go to the extent of matching the initial deposit with an equal additional amount to such accounts: leaving the new traders filled with gratitude. But have you ever wondered why such low minimum capital requirements are in place? Do you think it is intended to make trading easier for beginners?
Brokerage firms are businesses, and as such they maintain business targets, objectives, and some secrets. If you check the websites of some brokerage firms, you will see written declarations (usually by the header or footer section, and in small font size) that 70% to 90% of their traders lose money. It implies that brokers are well informed of the categories of traders that lose money: and their general characteristics; they understand that the majority of new traders get into the business with all sorts of faulty beliefs and assumptions, and little to no knowledge and training. And as such, those new traders are likened to low hanging fruits that are well-ripped, and are either to be plucked, or allowed to drop to the ground and decay.
To attract as many new (ignorant) traders as possible, brokerage firms lower the minimum amount requirement for opening new accounts: in full knowledge that many of those who sign up would not last beyond a few months. So, “why would brokers knowingly bait such traders?” you might ask. A hash reality to keep in mind is that, as far as client to broker relations are concerned, there are far more depositors of funds than there are withdrawers of funds: and some withdrawers extract really large sums. And brokers have got to get the money from someplace or someone (or group of people).
DECIDING THE RIGHT AMOUNT OF MONEY FOR YOU
Take a brief moment to reflect on your psychological traits, your current experience and skill levels, the forex pair(s) you intend to trade, and your choice of methodologies. Now ask yourself this question. ‘At this period in time, what minimum amount of money would I be content to earn whenever a trade concludes in my favour?’ Write that amount down and look at it; then ask yourself that question again. If the answer you’ve come up with is the same as the first-time round, multiply that amount by five-hundred; and that should give you a better idea of the approximate amount of money you would require in your broker account to start trading: with minimal capital-related tension. So, for example, if $10 is the minimum amount with which you’d be content per winning trade, approximately $5000 would be ideal as a minimum starting capital.
The aforementioned can be viewed as a starting point. As you continue developing skills (both execution and trading psychology), more risk can be entertained, and greater rewards derived.