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Forex -- also foreign exchange or FX -- is the largest investment place in the world with more than $4 trillion in currency exchanging hands daily through 100 percent pure speculation meaning no physical currency trades hands. Growth in online brokers and trading platforms combined with a highly liquid trading environment and a virtual 24/7 marketplace make currency trading appealing to high growth investors. Because of its high risk of loss, trading in Forex requires skill and discipline.
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Losing Money is Okay
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A common notion in investing is that it is never okay to lose money. While this makes perfect sense, this thinking also causes novice Forex investors to avoid cutting their losses on a bad trade only to end up buried. The Forex Channel website points out that the ability to cut your losses quickly in a bad trade using stop orders is what sets advanced Forex traders from those likely to lose out quickly.
Follow the Trend
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Anyone that has spent significant time investing in any market has likely heard that common adage "the trend is your friend." Perhaps overused and generalized, this brief bit of advice is highly important in Forex investing, as noted by eToro in its overview of this very concept. Currency pairs are always trending in one direction or another. The key is to identify which direction the pair is moving in the long run. Even short-term investors benefit by not routinely taking risks against the big picture trend.
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Have a Plan
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Before entering any Forex position you should have a plan for exiting. Without an exit plan, you are essentially gambling on a right pick and are allowing your emotions to determine when to profit, or get out. Your emotions are your enemy in foreign currency trading. Your exit plan should include a stop-loss order, notes the Forex Channel, which prevents major losses if your trade is bad. It should also include a plan to take profits in the short, medium or long term.
Time to Trade
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While Forex is open 24 hours a day, Sunday through Friday, not all times are as volatile and active, notes eToro in its article "The Quest for Volatility." Day traders and short-term momentum traders prefer active trading times to optimize opportunities to profit quickly. These active trading periods usually occur during overlaps of open trading times in major global currency markets. Caution is important following major economic and currency news announcements as wild swings are common. Difficulty in efficiently entering and exiting positions immediately following these news items causes some advanced traders to wait for calmer investment opportunities.
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References
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