Options as a Strategic Investment

Currency or FX trading is an exciting and rewarding activity that no trader or speculator should leave out. It offers a liquid, fast moving market, the use of leverage and opportunity to trade global stories. It trades 24 hours a day so individuals can find a time segment to suit any lifestyle. That means that FX trading is suitable whether you trade full time or put in an additional activity while you take care of your full time profession.

Being the largest market, retail traders are pitted against the largest business and financial entities and some of the smartest brains. Coupled with the use of large levels of leverage (50 times in Singapore and up to as much as 800 times offered by brokers elsewhere), trading in FX can be a highly risky business. Therefore, early mistakes for the novice or aspiring trader can be expensive and can put one out of business right away.

In this article, I would like to bring up 10 essentials for new trader to take note. Consider them the survival guide while you navigate unfamiliar territory. The rule is to stay in the game while you strengthen your wings and feathers. This guide will help new FX traders eliminate mistakes that arise from lack of experience as well as personal complacency.

There are plenty of literature both in print as well as the Internet. While many titles that you pick up will actually carry a lot of information that overlaps, I always consider it worthwhile if it contains one paragraph that has insight not mentioned elsewhere.

Discussion with such persons provides structure to all the information that we have gathered through our reading. We ask for their help with the questions we have and as a two-way process, they jog our memories and test our understanding by asking us critical questions.

An experienced and caring professional can also interview you to understand your needs. By pointing to a suitable path based on their experience, they can help to save us a lot of trial and error.

No one trades FX without knowing technical analysis because it is really a game of managing support and resistance and knowing what the trend is. Now some readers may not like that sentence but let me make some observations.

Visit popular FX-related websites like DailyFX (http://www.dailyfx.com) and CNBC (http://www.cnbc.com) and you will realize that there are always price charts and mention of support and resistance of currency pairs. Now you need technical analysis knowledge to be able to analyze those and that means if you ignore technical analysis, you miss out half of the input.

We can really get good ones provided by trading brokerages if we use their trading platform. Not all brokerages provide price charts however and some provide charts that are inadequate.

What kind of charting software?

Get acquainted with economic news and understand their implications to FX. That said even readers who have good clear understanding of economics may not be able to fully comprehend their effects on currency movement. That is because as retail traders, many of us do not receive enough information. In addition, the markets are forward looking, that is they anticipate and move ahead of events so that markets may not react anymore when news actually comes out.

I know of two types of traders who make use of news announcements: one to speculate and the other to avoid them.

The former speculates on the outcome of news announcements hoping that price will react decisively in a profitable direction. While it sounds like betting, some technique is involved. To be profitable in the long run, the speculator must follow some rules including limiting the downside risk of getting it wrong.

The other type of trader uses some strategy or another but wants news out of the way. Sudden movements are not welcome so no news is good news.

Whether you like to trade news or avoid them, a trading calendar is indispensable.

A good calendar has the following:

This is the place where we try out FX trading in a hands-on manner. After all we need to put our knowledge to application. At this stage, two things cross your mind: what is a good demo platform and what do you do with it?

Some important features:

What do you then?

Your strategies should make use of technical analysis or fundamental analysis or both. You should never be trading on someone else’s opinion because FX is fluid and situations change rapidly.

A crucial aspect of FX trading is risk management and cutting loss. Due to the high levels of leverage at work, traders should never hang on to a losing position. Averaging is NO-NO.

Improve and refine your strategy until you win money consistently. You must fully understand the mechanics of success so that they can be duplicated. Reasons for failure must be avoided. Sometimes, you have to drop a strategy entirely and start all over.

The more we trade, the more we learn. Situations continue to arise that challenge our knowledge. Gaps will appear and ‘truth’ suddenly becomes myth. Learn to recognize price setups and the events they associate with. Drill your trade execution based on the chosen strategy until you can carry them out reflexively.

Cash accounts should fit some criteria:

New traders should take note of an important fact. Brokerages offering FX trading in Singapore provide differentiation of services. The terms and conditions they offer can be varied and no one should take for granted that one broker is the same as the other. Make sure that you talk to a trading representative to discuss the finer points.

That’s because at this point emotions are involved. Make sure that you trade with disposable funds and follow a plan. After all, currency speculation is a really thoughtful activity.