Forex is a word many of us have heard, but few truly understand it’s meaning. Forex, or foreign exchange is used to signify a global currency trading market. It’s the largest financial market in the world, consisting of more than trillion dollars worth of transactions – every day. As investors big and small are becoming interested in playing the Forex market, it continues to grow at a rapid pace. In addition to being the world’s largest financial market, it’s also the most fluid. There’s no central marketplace where the currency is exchanged. Forex is a decentralized financial market, and all trading takes place over the counter. This makes Forex very different from traditional markets (stock market for an example), and provides several unique benefits to the investors and traders – one of the biggest ones being the ability to choose from many different deals at any time.
Generally speaking, bigger Forex dealers will be able to offer better rates and pricing to their clients. Forex is available twenty four hours, every day from Monday to Friday, and trading takes place all around the world – although it’s concentrated around major global financial centers. Every single trade that takes place in the Forex market can be described as both a buy and a sell. In effect, a Forex trader is buying one currency while at the same time selling another. The two currencies involved in the trade are called a “currency pair”. The first currency thus becomes the “base currency”, while the other is known as “counter currency”.
Currency pairs can be seen as unique items that can be sold or bought on the Forex market. When making a Forex buy, the base currency is bought, while the other – counter currency – is in effect, sold. On the other hand, a Forex sale would mean that the counter currency is bought, while the base currency is sold. The Forex market revolves around currency pairs, the four most important and most heavily traded ones being Euro/US dollar, US Dollar/Japanese Jen, British Pound/US Dollar and US Dollar/Swiss Frank. Of course, other combinations of these and other currencies are allowed as well.
Naturally, there’s a lot more required in order to be a successful Forex trader than simply knowing the basics and the most popular currency pairs. The best way to learn is through practice, and in Forex trading, that means using a demo account. Most better online Forex trading platforms offer free demo accounts to new traders. When you register for a free demo account with an online Forex trading platform, you would get access to the same Forex trading software that real clients (including some of the biggest financial institutions, banks and governments in the world ) are using, with one exception – while they are making multi billion dollar deals every day, you will be trading with virtual currency, without any real risk. Still, everybody’s got to start somewhere, and learning about Forex through practice is the best way to become a successful Forex trader in time.
Most books, blogs and advice articles about Forex you can find online deal extensively with trading tactics, exit strategies and complicated calculations – but very few address the importance of dealing with emotions like anxiety and fear. I believe that the importance of psychology and proper mental preparation in Forex trading is too often overlooked, and hopefully, this article will be able to shed some light on this important topic.
First of all, let’s define our field of interest – the psychology of Forex (or any other financial) trading. In my opinion, the emotional aspects of Forex trading have just as much to do with the success or failure of the trade as your strategy or knowledge of rules of the trading system. Every emotion that the Forex trader might feel when placing a trade or exiting one can make a difference and affect his behavior, even though he might not be aware of the fact. Being able to deal with this emotional stress will enable the trader to be in full control of his decisions, which will ultimately make all the difference in the market.
So, if controlling one’s emotional state is so important from the perspective of Forex trading, why isn’t this topic covered more often? That’s a good question. Most Forex experts are not psychology experts at the same time, so they tend to deal with what they know – trading systems and exit strategies. And at the same time, most psychologists don’t know much about Forex trading. When these two are put together, we get the situation we are in, and the topic of Forex psychology doesn’t get as much exposure as it’s importance deserves.
I strongly believe that every aspiring Forex trader can benefit from simple psychological exercises. These can positively affect one’s mindset, improve their level of enjoyment, and most importantly – their profit margin.
First thing every Forex trader who is looking to strengthen and improve his mental state should do is to decide on what he’s hoping to get out of it – or set some goals. Some Forex traders will aim to become able to always follow their entry rules, while others want to be able to stay patient and wait for the next setup if they miss their entry. Others will want to limit their risk exposure, while others will try to manage their trades by their exit strategy, rather than by guessing. In any case, the Forex trader will want to limit the effect of his emotions – the irrational part of his brain – have on his decision making and logic.
Once your goal is set, the best way to move forward is to design a strict set of rules you will follow in all of your Forex trades – and stick with it. In practice, the best way to go about this is to design a trading system and practice it for as many times as possible – while taking note of every trade that takes place. If you are able to do this, you will soon start to notice that the fear of losing and anxiety will have less and less effect on you – until one day, they are only a distant memory.
The psychology of Forex trading
Most books, blogs and advice articles about Forex you can find online deal extensively with trading tactics, exit strategies and complicated calculations – but very few address the importance of dealing with emotions like anxiety and fear. I believe that the importance of psychology and proper mental preparation in Forex trading is too often overlooked, and hopefully, this article will be able to shed some light on this important topic.
First of all, let’s define our field of interest – the psychology of Forex (or any other financial) trading. In my opinion, the emotional aspects of Forex trading have just as much to do with the success or failure of the trade as your strategy or knowledge of rules of the trading system. Every emotion that the Forex trader might feel when placing a trade or exiting one can make a difference and affect his behavior, even though he might not be aware of the fact. Being able to deal with this emotional stress will enable the trader to be in full control of his decisions, which will ultimately make all the difference in the market.
So, if controlling one’s emotional state is so important from the perspective of Forex trading, why isn’t this topic covered more often? That’s a good question. Most Forex experts are not psychology experts at the same time, so they tend to deal with what they know – trading systems and exit strategies. And at the same time, most psychologists don’t know much about Forex trading. When these two are put together, we get the situation we are in, and the topic of Forex psychology doesn’t get as much exposure as it’s importance deserves.
I strongly believe that every aspiring Forex trader can benefit from simple psychological exercises. These can positively affect one’s mindset, improve their level of enjoyment, and most importantly – their profit margin.
First thing every Forex trader who is looking to strengthen and improve his mental state should do is to decide on what he’s hoping to get out of it – or set some goals. Some Forex traders will aim to become able to always follow their entry rules, while others want to be able to stay patient and wait for the next setup if they miss their entry. Others will want to limit their risk exposure, while others will try to manage their trades by their exit strategy, rather than by guessing. In any case, the Forex trader will want to limit the effect of his emotions – the irrational part of his brain – have on his decision making and logic.Once your goal is set, the best way to move forward is to design a strict set of rules you will follow in all of your Forex trades – and stick with it. In practice, the best way to go about this is to design a trading system and practice it for as many times as possible – while taking note of every trade that takes place. If you are able to do this, you will soon start to notice that the fear of losing and anxiety will have less and less effect on you – until one day, they are only a distant memory.
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