If you’re new to forex trading Australia, it can be effortless to get swept away in the excitement and promises of fast riches. It’s even possible that someone else may have convinced you that they’ve made a lot of money from forex (or related areas such as Binary Options or cryptocurrencies).
While this may sometimes be legitimate, it is far more likely to be false advertising. For anyone to make a large amount of money from Forex trading, they would need:
- To trade successfully in many different market conditions (including up and down trends and neutral periods) without losing too much money before finding an opportunity; and
- Not to tell anyone about their strategy/method/set-up/etc.
Unfortunately, the chances of this being true are very slim indeed. You also need to have an appropriate bankroll for each trading strategy you have, so if they’ve used a different strategy on their other accounts, any money they make would be offset by massive losses on their other accounts.
When it comes to Forex trading, most unsuccessful people will claim that it’s because they haven’t had good luck or haven’t “got the feel” for it yet.
This is not true; forex markets are highly predictable, and you can determine the location of trades with extremely high levels of accuracy (assuming there aren’t any unforeseen fundamental changes). If you think about things logically, two currencies with similar economic policies are more likely to correlate their prices than two currencies with radically different economic policies.
Forex trading is not something you can jump into without some planning. No matter how good your strategy is, it’s imperative to have an understanding of what you’re trading and why, how much money you’re willing to risk (and lose), and what your goals are for the future (be it minutes, hours, weeks or months).
1. Decide on a Proper Forex Trading strategy
Forex traders have a lot of different strategies that they can use. Regardless of which strategy you decide to go with, you must read the documentation and clearly understand what your trading process is going for before you start trading.
2. Decide on your risk tolerance
To be successful, you need to have a decent understanding of what kind of money you’re willing to lose. If you know that you can handle R10 000 of loss, then starting with R50 000 or more is a lot better than risking everything from the beginning.
3. Decide what your goals are
What are you trying to achieve? Do you want 5% per week, 10% per month, etc.? Once again, it would be best to think about this before trading, as it’ll give several clues as to the size/frequency of trades that would be best for your account balance and risk tolerance.
4. Calculate your required capital amount
To accurately calculate how much money you’ll need, you’ll first need to determine how much capital (margin) you will require for each trade.
You can find this by using the following formula:
(Position size / lot size) x lot size x margin per 1k = required capital amount
For example, if you’re trading with R10 per pip (R100/1 000) and the lot size is 10 000 then you’ll need the following amount of money (capital):
(1 / 10 000) * 10 000 * R100 = R10 500
5. Determine your monthly expenses
Remember that you will need to pay for things like your rent/mortgage, food, internet access, and other miscellaneous expenses at the end of the month. If you have trouble thinking about this, it may help set up a spreadsheet with estimated amounts per month so that you can see what kind of impact these expenses have on how much money you’ll be making.
6. Calculate approximately how many trades per week or month are required
Now that all factors are considered, it’s time to determine how many successful trades per week/month would be necessary for your strategy to run smoothly. For example, if you’re looking to make five trades per week, you’ll need approximately 42 successful weeks to be sustainable (assuming that there are no losses).
Once you have created a plan and thought about everything, you will be ready to start trading.