Forex Market Trading Rules

First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

The Forex, or foreign currency exchange, is all about money. Money from all over the world is bought, sold and traded. On the Forex, anyone can buy and sell currency and with possibly come out ahead in the end. When dealing with the foreign currency exchange, it is possible to buy the currency of one country, sell it and make a profit. For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit.

Those new to trading in the Forex market can find it a little bit intimidating and overwhelming at times. The rules and strategies for a beginner can seem like too much to learn. There are rules that you will learn along the way, for example price limits, but there are a few steadfast rules you should know before you make your first move in the Forex market. Using the three rules listed below will help you get started and successfully maneuver your way through the foreign exchange market.

Leveraging Your Portfolio

It can be easy to get caught up in the leverage of the market when just starting out in the Forex. The great thing about leverage is that someone who is not investing as much as other larger traders can play with the big guns and potentially make a good profit. In most cases, an investor can expect to only to back their investment up to 4%. This can get some people in trouble, however, and when you choose to abuse the system you can end up with a lot of debt. Never over leverage your portfolio. Be responsible when trading and remember that you are trading larger amounts than you probably have in your portfolio. The way to make sure you use the Forex market to your best potential is to keep yourself grounded.

Knowing when to quit is another rule for trading in the Forex market. It may sound simplistic but it is a great rule to never forget. On the other hand, knowing when to let things stay as they are is also a rule to remember. There is no way around occasional trades that have a negative impact on your finances. Not every trade you make will be a success. In the ever changing foreign exchange market there is no way to guarantee that every trade will reap rewards. Even the most seasoned foreign exchange market traders have bad trades. Your ultimate goal in trading on the Forex should be to try to come out with more wins than losses.

You should always know when to fold on a deal, thereby making it easier to come out ahead at the end of the day. Be sure to always get out losing the least amount of money as possible. This is a strategy every great trader uses. Watch your trades closely and get out when you should. If you have researched the trade before, you will know what the breaking points likely are and be able to make this decision easily. Knowing when to leave well enough alone is another skill one must learn. Learn to be patient with your trades, especially if they are not in a negative position.

Research Trades

Researching trades beforehand may seem monotonous, however, you should never make an order in the Forex market without knowing exactly what you expect to happen. Look at trends and history in order to get a better idea of what to expect. If you simply go out into the market with no background on the issues, you could lose a lot of money. So, take the time to do a little research before you begin.

Place Stop Loss Orders

You should always be familiar with a stop loss order before you begin trading in the Forex market. The stop loss order should be placed right along with your entry order. This type of order protects you from a potential loss getting out of hand. If the market takes a dive, you will be protected with the stop loss order. You must figure out however, before placing the order, at what point you would want to cut your losses. You should always do this before placing an order. Although you may find that many traders do not utilize the stop loss order process, you will find that the more successful traders use it often.

Three simple rules to follow to ensure that you get the most from trading on the Forex market.