Before you start trading, you must know what you are doing. The forex market can be intimidating to new traders due to its size and complexity. Never trade with money you cannot afford to lose. If the thought of losing money scares you, consider dollar-cost averaging or not investing at all until you gain more knowledge about trading.
There are many different types of traders in Singapore. Traders range from conservative investors to high-risk gamblers. Locate yourself on this risk spectrum before determining your profit/loss ratio and stop-loss point (more on this later). Once done, decide how much time per day you want to commit while trading. A general rule of thumb states that novice traders should not spend more than 5 hours a day trading forex.
Once you have done the above, determine your profit target and stop-loss point (again, later on). A good rule of thumb is to consider your experience level while choosing these two points.
For example, if it’s your first time trading, you should aim for 10% profit per trade while placing your stop loss at 2-5 pips (a pip is roughly 0.01 USD in value). If you are an experienced trader who has managed to make consistent profits over the long term, then consider placing 100 pips as a profit target with 1 – 2% risk per trade. Here’s an article that can help you get started.
Only use money that you can afford to lose. Managing risk is a critical factor in successful forex trading. Never chase trades. If a trade looks too good to be true, it most likely is. See my post on avoiding these classic trading mistakes. Avoid trading when the market is thin and volatile, leading to higher spreads and slippage. A thin market means low liquidity, which can prove dangerous for newbie traders who don’t know how to react when the price moves against their positions. Here’s an article that elaborates on common strategies from professional traders
Finally, familiarise yourself with the following terms before starting your forex journey: Entry point/price – This refers to where you expect a particular currency pair to move towards. Ex: EUR/USD 1.4550 Stop loss point refers to the price where you expect one specific currency pair to reverse direction and move against your position. Ex: if you buy USD/JPY from 131.50 with a stop at 130.30, once USD/JPY moves above 131.90, the order will be executed automatically.
Take Profit Point: This refers to the price where you close your trade with a profit or minimise your losses when trading without a take profit order.
Price movement in one direction against the current trend is called a retracement, while movement in the opposite direction Iis termed as a reversion. Reversion implies that price action will revert towards critical support or resistance levels. In forex, if the EUR/USD breaks above 1.4600 and subsequently falls back below 1.4550, this is a reversion of price action to a crucial support level.
Once you have familiarised yourself with these terms, consider starting your currency trading journey with one of Singapore’s registered currency brokers, such as SGFX (no dealing desk). It will enable you to practice currency trading in a simulated environment before doing it for real. Additionally, get involved in currency forums such as Currency Chat, Interbank FX Forum and iForexExchange Forums, which provide necessary information on currency trading and the forex industry.
If you intend to trade currencies in a live account, then look at SGX’s latest initiative – the iPlatform. In addition, ensure that your automated trading software is compatible with Singapore’s tight regulation of online financial transactions and high-grade security protocols.
Check out Saxo forex broker for more info on trading forex.