The price of one currency relative to another isn’t fixed. The value of money, when priced in terms of others, tends to hop around depending on the situation in the home country.
The Brexit referendum result, for instance, caused the value of the pound to plummet in the days and weeks afterwards before it eventually popped back up. Problems concerning Deutsche bank led to issues with the euro. And similar examples exist all over the world.
Because prices float up and down in response to new information, there are opportunities to make money. If you can see a problem emerging in a particular currency and get out fast, you can potentially make a lot of money when you buy again. The investors, for instance, who sold pounds before the Brexit referendum result and then bought back the day after made a lot of money.
Trading on the international currency markets without a forex broker, however, is a massive challenge. The average person simply can’t access the markets without going through a professional agency.
Furthermore, trading as an individual is tricky too. Most people try to buy and sell whenever they have the chance during the day, usually before work or at lunchtime. It means that the average person misses out on multiple opportunities. Very few people can trade forex full-time. And even fewer can keep their eyes on markets 24 hours per day.
With that said, there is still money to be made trading currencies. So, what strategies should you use to increase your likelihood of success?
Create Stop-Loss Orders
Most investors in forex markets are prepared to take a small hit. The market naturally fizzes up and down throughout the day. That’s the nature of markets. Relatively few, though, are prepared to take big hits to their position.
For that reason, a lot of traders put stop-loss orders in place. The idea here is to sell currency and cut your losses if the price falls below a certain level. Computers carry out the trade automatically, so even if you’re part-time, you can get out quickly.
Take Fewer Positions
It is tempting to take multiple positions the moment you jump into forex trading. But do you really understand all the currency dynamics at play? Probably not.
For this reason, many professional investors recommend that beginners start with a few positions and work from there. Where possible, focus on the big stories first and then drill down into the details. If you think that there’s a good reason that the yen will fall against the dollar, then investigate this thoroughly instead of taking a piecemeal approach.
The technology available to amateur traders is better than ever before, thanks to smartphones and email. Where possible, take advantage of alerts. Often news organizations will issue stories that warn investors of impending dangers and opportunities, allowing you to get in and out ahead of the crowd.
The bottom line is that the forex market is volatile. You need to have nerves of steel to trade in an environment like that. But with the right approach, there’s money to be made.