The Forex markets have been in the news lately due to the ability for even novice investors to make a sizeable profit (with skill and caution, of course). However, this may indeed be easier said than done. Without possessing the correct strategies, any trader will be relying upon more luck than skill. What are five excellent ways to build sustainable wealth through the Forex markets?
The secret to wealth management is to appreciate the immutable fact that fortunes are made over time. The most prudent and successful investors will accrue small profits on an incremental basis as opposed to maximising their capital within any single position. We should also keep in mind that piecemeal investments can help mitigate massive losses.
Many novice traders are surprised to know that professionals will rarely place more than 3 or 4 per cent of their total trading capital into any given position; regardless of how much of a “sure thing” it may seem. This is the only way to make certain that catastrophic losses do not occur. This strategy also ties into the last paragraph referencing to “baby steps”.
Understanding Leveraged Trades
Leveraging is an important concept that tends to be misunderstood. A leveraged position will enable a trader to obtain a higher volume of a specific asset than would normally be possible with a standard trade. The positive aspect of a leverage is that substantial profits can be made if the Forex currency pair moves in the correct direction. Such returns can far exceed the initial capital outlay. However, the opposite is just as true. Losses can FAR exceed the initial investment. This could be crippling to any trader with a limited amount of finances. Therefore, only approach leveraged trading after a substantial amount of time has elapsed.
It is always wise to counterbalance one currency pair with another. An example here can be taking out two positions. These may be:
- A dollar/euro holding.
- A euro/pound holding.
The principle behind this strategy is that should one currency fall (such as the dollar), another may rise. Thus, the potential losses associated with one pair can be offset by the gains exhibited in another. This is the same approach that many wealth managers utilise when diversifying the portfolio of a client.
Choosing the Best Platform
There are numerous electronic brokerages available and each will offer its own unique attributes. CMC Markets is able to offer cutting-edge trading instruments, 338 different Forex pairs, spreads as low as 0.7 pips and user-friendly trading software. These will provide any investor with the clarity and the real-time information necessary to enact a trade without delay.
These are five excellent tips which are meant to serve as basic guidelines for those who may be new to the world of Forex trading. Please keep in mind that it will take time to build wealth and any trade is associated with a certain amount of risk.