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Forex Currency Exchange: The 3 Golden Rules

By James Roshwood

Republish: EasyPublish™ Published: 17Jan2010 Word count: 523 Viewed: 972 time(s) Get Free Content For Your Site

Anybody who begins forex currency exchange trading hopes to make money. That is why we do it. But the unfortunate fact is that the majority of new traders and some experienced traders see their FX trading funds dwindle and vanish. Why? Because forex trading is risky, and they did not observe the three golden rules of forex currency exchange trading, which are:

Rule 1: Lower Your Risk

A lot of the advice that you see online will tell you to keep your risk down to a maximum of 5% per trade. What they do not tell you is that with many systems, depending on the profit targets,

this is still extremely risky.

When you first start out you may have a small account balance and you may be willing to take bigger risks with it in the hope of making it grow fast. For example, if your balance is under $1,000. In that situation 5% may be OK. However, be aware that you could easily lose it all if things go wrong. It is far better to be cautious and grow your trading bank over time like a good wine or cheese and mature it slowly.

If your account balance is larger than $1,000, it will become even more important to you to protect it, so you should lower the risked investment on each trade. There is always some risk, but by reducing down to 2% per trade or less, your funds will be safer.

As your account balance grows you should gradually reduce the percentage risk. The biggest traders are usually risking less than 1% of their funds on each trade.

Rule 2: Keep It Simple

It is a huge mistake to think that you have to learn everything in forex currency exchange, use every possible indicator and go with the most complex system that you can find. Successful forex trading systems are usually easy to operate. That is why they work. So start with one simple system that has good reviews and get it working before you even think about trying another.

Equally, you should not try to trade several different currency pairs. Pick one. When you are actually making money with it, you might want to expand to another, but it is very confusing trying to watch a lot of different pairs at the same time. Cable or USD/GBP is a good place to start with high volumes of trade and not too volatile.

Rule 3: Test With A Demo Account

It is well known that it is important to test your system and your skills in a demo account before you go live, but you are often not warned that there are also dangers in testing too much or for too long. Once you know that the system is good and you are operating it well, it is time to switch to real money. It is easy to become over confident in demo mode and when you finally go for the real thing, the stress causes big mistakes. So it is often better to go live with your forex currency exchange trading as soon as you reasonably can, but start out with very small real money trades.

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