10 tips to trading forex

One of the largest markets in the world, forex trading offers traders the chance to speculate on the value of one currency against another.

For an in-depth introduction to the arena, read: How to trade forex, but these 10 pointers should provide you with the requisite base to get started on your currency-trading journey.

1. Learn the rules of the road

Educating yourself about the markets is of paramount importance. Take the time to study the markets and learn the intricacies of trading forex before risking real capital.

2. Pick a route and stick to it

How can you get to your destination if you veer away from your strategy?

Create a plan to guide your trading. It should include your profit goals, risk-tolerance level, methodology and evaluation criteria. Once you have a plan in place, make sure each trade you consider falls within your plan's parameters because you're most rational before you place your trade and most irrational once your trade is live.

3. Practice

Put your trading plan to work in real market conditions with a risk-free practice account with Interactive Investor.

You'll get a chance to see what it's like to trade in real market conditions, while also taking your trading plan for a test drive - without risking your capital.

4. Check the conditions before placing a trade

Fundamental traders prefer to trade based on news and other financial and political data. Technical traders prefer technical analysis tools like Fibonacci retracements and other indicators to forecast market movements. Some traders even use a combination of the two. No matter what your style, it's important to know how to use technical and fundamental tools to help you find higher probability trades.

Visit the fundamental analysis and technical analysis sections of our Knowledge Centre.

5. Know how far you can afford to go

You wouldn't take a week-long vacation on a day-trip budget. Develop a risk-to-reward ratio that fits your financial situation. Know your limits, and how much you are willing to risk on each trade. Never risk more than you can afford to lose. Always make sure you have enough capital to trade another day. Which brings us to the next point...

6. Know where to stop along the way

Stop and limit orders can help manage risk and protect potential profits by helping you get in or out of the market at specified prices. With an Interactive Investor account, you can even place automatic trailing stops which trail your position at a specific distance as it moves, helping to protect any profits should the market reverse. Parent and contingent orders can help you set up an entire trade, including entry and exit points and risk management, in one quick step.

7. Avoid road rage; stick to the plan!

Check your emotions at the door because 'revenge trading' is never sweet. When you have a losing trade, don't go all-in to try to make it all back in one shot. Stick with your strategy. It's always smarter to make it back a little at a time rather than being stuck with two crippling losses.

8. Know what type of driver you are

Understand your tendencies and personality traits so you can combat your weaknesses and maximise your strengths more effectively.

For example, if you know you tend to be a more emotional person, you'll want to be extra careful to trade based on analysis and your trading plan rather than fear of losses or the excitement of potential profits.

9. Remember, slow and steady wins the race

One key to trading is being consistent. All great traders have lost money, but as long as they maintain a positive edge, they may still come out a winner. Educate yourself, stick to your trading plan, manage your risk and practice discipline and patience. However...

10. Never be afraid to explore a new path

Although consistency is important, don't be afraid to re-evaluate your trading plan if it's not working for you. As your experience grows, your needs may change. Your plan should be a reflection of your goals. If your goals or financial situation changes, so should your plan.

Want even more? Visit our spot forex trading centre to find out what you can invest in and learn about our award-winning trading software..