Do you think it would be a good idea to open a forex account given the large number of success stories on the internet? Are you currently trading on a demo account for more than two months and willing to switch to real-time trading? Wait! Despite the fact that forex trading is now available to all, only a few traders remain profitable in the long term. If you rush into opening a live forex trading account without asking yourself some questions, you are going to make one of the biggest mistakes of your life.
There is no doubt that the forex trading industry has been growing steadily over the years and many new traders have been attracted to this segment because of the many success stories associated with it. We believe this article will be of great value to you if you are new to forex trading or you are struggling with it. Take the time to write down the questions you need to ask yourself after reading it, and We believe you will have a new perspective on forex trading after reading it.
“An investment in knowledge pays the best interest.”— Benjamin Franklin
Here are the top 8 questions you should ask yourself before you open a forex account and start to trade forex for the first time.
8 Questions To Ask Yourself Before Trading Forex:
Many successful investors and traders are often daring individuals. Though it is impossible not to panic when the market is agitated, the best advice is to remain calm and keep a cool head. When it comes to investment decisions, panicking and making rash decisions under such circumstances could prove disastrous. A volatile market, however, will encourage many traders to act as soon as possible. A trader should always be on the lookout for opportunities and evaluate risks carefully. Here are the 8 critical questions to ask yourself before you open a forex account and begin trading in real-time.
1. What kind of Forex Trader are you?
There is no one-size-fits-all trading style when it comes to forex trading, for the simple reason that each trader has a different trading style combined with a different set of goals, capital and an entirely different schedule of trading.
Trading Forex is suitable for short-term and long-term investment goals, and it is ultimately up to you to decide which one you want to trade. A short-term trader seeks to earn quick profits by focusing on highly fluctuating prices, whereas a long-term trader targets steady profits by focusing on more fundamental elements. Whatever you choose between long-term vs short-term, you can create limitless opportunities in the financial markets with a disciplined and consistent approach. If you combine common sense with caution, all strategies can be adapted to fit your needs.
Nevertheless, one extremely important thing you should know before you open a forex account is that:
No matter what trading style you choose, make sure that it truly fits your personality!
To be honest, when you are just starting out as a forex trader it isn’t always easy to find the best trading style or strategy that will suit your needs. Since there is a variety of forex trading styles available for trading forex, it takes time and patience to develop your own trading system and fully understand the risks involved. Before you open a forex account and begin trading live forex, you can try all kinds of trading styles with a demo account in order to decide what kind of trader you would like to be.
2. Do you know how to analyze the market trend?
If you are about to open a forex account and get started with forex trading, you should also understand the benefits and drawbacks of popular market analysis tools, such as technical, fundamental, and sentiment analysis. There are some traders who are successful only because they are able to master one approach and trade profitably with it, while there are others who use a combination of two or more analytical disciplines, like technical analysis and fundamental analysis.
Technical analysis utilizes technical indicators and historic price patterns in order to predict the future movements of the forex market based on the study of historical price action. Meanwhile, fundamental analysis focuses on evaluating a currency’s price and assessing the factors that may influence its value in the future, such as external influences, financial statements, and economic trends.
Combining fundamental analysis with technicals is a wise strategy if you intend to engage in long-term forex trading. A long-term trading style refers to a type of trading that involves holding on to your positions for an extended period of time. Historically, currencies follow macroeconomic developments and market-moving reports can easily break established support or resistance levels. Combining fundamentals with trading can help traders anticipate large exchange rate movements and increase their success rate.
3. Have you developed a Trading Plan?
After determining what type of trader, you will be based on your trading goals, it’s time for you to come up with a trading plan. To achieve successful forex trading experience, it is essential to develop a trading plan. Essentially, it describes your entry and exit strategy, your lot size, your stop loss level, and your take profit level, among other things.
‘If you fail to plan, you are planning to fail!’
When making the decision to open a forex account, a clear and comprehensive trading plan can mean the difference between success and failure. The trading plan assists the trader in executing trades through a systematic approach, incorporating market analysis, taking psychological factors into account as well as risk management. On top of everything else, make sure you develop a trading plan that is not only simple to follow, but also straightforward as possible.
4. What are the best times to place your trades?
The Forex trading market is open from Monday through Friday, around the clock. Buying and selling on the forex market take place in four trading sessions: Sydney, Tokyo, London, and New York. Since there is always an open market somewhere in the world, traders can place their trades at any time they want. As New York sleeps, Tokyo and Sydney remain awake, and vice versa.
Even so, certain times offer improved profit opportunities than others, regardless of the ability to place trades round-the-clock. Currency fluctuations will be greater when more than one of the four markets is open at the same time. Trading volume and trading opportunities are always highest during the overlap between U.S. and London trading sessions (8 a.m. to noon EST). Even though Sydney and Tokyo trading sessions overlap between 2 am and 4 am, they present excellent opportunities.
The best and worst times for trading Forex depend entirely on your trading strategy, style, and currency pair preferences. You should, however, be aware of certain situations if you want to protect your capital. Find out the best and worst times to trade forex so that you do not end up losing your hard-earned money in the wrong market timings.
5. How long should you use a demo account?
The right answer to this question varies from trader to trader. For beginners to become proficient with trading platforms, it usually takes one or two months for them to gain sufficient knowledge and become confident enough to open a forex account. However, if you feel that you are not yet ready for the tasks ahead, then don’t hesitate to take as long as you need.
Nevertheless, it is crucial that you do not spend too much time on demo accounts. Despite demo accounts being great tools for learning, they won’t make you any money in the real world. To turn your practice and knowledge into actual profits, it is necessary to open a forex account on the live market. However, it is up to you when that day arrives. To make the shift easier, you can start with a cent account. A cent account comes with low-risk trading that lets you sharpen your skills and gain experience while experimenting to find the best trading strategy for you.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”
Find out when to move from Demo to Live Forex Trading to succeed in your trading career and gain financial success.
6. How much should you risk per trade?
Managing risks is one of the most important aspects you need to master before you open a forex account. There is no way to predict what the market will do tomorrow, next hour, or next minute. The purpose of placing a trade is to maximize the likelihood of winning – to pull the trigger on a position if you believe it has a greater chance of winning than losing.
We have no control over anything except the risk we take in the market. This is why successful traders risk only a small portion of their trading accounts with each trade. If your account grows, consider reducing your risk per trade to 1% as your account grows and don’t risk more than 2% of your trading account on a trade.
Understanding the importance of risk management before you open a forex account can help you become a successful trader:
- It ensures your capital is protected
- It reduces the risk of trading loss
- It will ensure that you earn a profit
The reward-to-risk ratio for each trade is just as important as defining your risk per trade. Your reward-to-risk ratio reflects how much you can profit from. your trade compared to what you could lose. If you would like to gain more knowledge about forex risk management, we have put together the proven 10 Steps to Manage Trading Risks in forex trading.
7. Are you prepared to lose Money?
Many newbie forex traders are anxious to avoid answering this question. Nevertheless, it’s one of the most important questions you need to ask before choosing to open a forex account.
“Losing is part of the learning curve.“
As soon as you open your first trade, a successful trader should always be prepared to lose money, which is why most traders will put a stop loss on their trades. There is always a risk involved when trading forex, and from time-to-time market forces might influence the direction of the trend, making it different from what you were expecting. So, before you proceed to open a forex account, make sure you ask yourself, “Are you ready to lose your trading capital”.
Don’t trade if you can’t afford to lose!
Newbies often open a forex account in order to take advantage of the potential for big profits that are associated with the forex market. However, the reality is that forex trading won’t help you find your way out of a bind if you already are in one. Trading forex will likely worsen your situation if you are already in a bind. The truth is that becoming a consistently profitable trader typically takes years, and most traders have to suffer losses along the way.
8. How to handle the stress of losing a trade?
Trading losses are an inevitable part of the investment and trading world. Most traders will experience a trading loss that will affect their trading attitude and make it difficult to bounce back. It is difficult for the majority of traders to control their mental perception of such situations, except for the most experienced and successful traders.
To contain your emotions, learn from mistakes, and never let them dictate the next trading decision, you need experience and a solid trading mindset. Most traders usually focus on maximizing profits and minimizing losses when trading in financial markets. However, developing a mastery of trading psychology is equally important as learning about trading and gaining experience.
Some emotions, such as fear and greed, can be justified and managed, but others like trading losses are more complex and difficult to manage. It is very important to develop a successful trading mindset in order to fully master trading psychology. Here is the top 7 tips to handle trading losses in real time before you open a forex account.
Learn top Forex trading techniques for Free!
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AximTrade offers a wide range of Forex topics facilitated by professionals with years of experience in Forex, ensuring you have all the knowledge you need to succeed in the global market. This will typically be a self-paced course, which allows you to set your own pace based on your schedule and learn at your own pace. By the end of the course, you will have a feeling of comfort and readiness to begin putting your knowledge into action by trading in real time.