Forex trading can be very attractive to aspiring traders on many levels. Trading concepts are relatively easy to grasp, and the forex market is the largest and most liquid financial market in the world. Daily market turnover volume is in the trillions, and round-the-clock sessions offer plenty of flexibility for traders of all demographics.
Currency trading has enjoyed massive growth in the MENA region over the years, despite the product still being in its infancy just over a decade ago. This is partially due to MENA’s geographical location. Linking the continents of Asia, Europe, and Africa, the region’s economy has been booming, and there has been a growing appetite in forex investments.
For aspiring traders looking to participate in the region’s burgeoning forex market, below are seven tips you can follow to avoid losing money when placing your first trades.
Do sufficient research
Firstly, novice traders should do sufficient research on how the forex market works and how trading takes place. They should understand that the forex market is only open on weekdays to retail traders and the factors that move currency valuations. These factors include political news, diplomatic relations, trade performance, economic health, and unexpected crises such as manmade crises and natural disasters.
Once traders have made an effort to learn about forex trading, they should be prepared to keep learning on their trading journey. The financial world is a dynamic place that moves very quickly. Market conditions constantly change, and so do global and domestic regulations. Forex traders have to do their due diligence and keep up with the markets and the news to make informed decisions.
Find a reputable broker
Next, novice traders should find a reputable broker. The forex market is decentralised, and no single party or entity has sway over how markets move. On the contrary, the market is largely driven by investor sentiment and news. Central banks have some sway and can issue domestic currencies when they depreciate drastically and quickly. However, there is no one central regulatory body to control the entire market.
Finding a reliable broker is of utmost importance. Traders should read reviews online, check out brokers’ websites themselves, and ensure they are regulated by local monetary authorities. Word of mouth can also be very useful. Asking friends and family for broker recommendations will ensure you find a trustworthy broker.
For traders in the MENA region, you have two types of brokers to choose from. You can trade with local brokers that offer access to global markets, such as ADSS and Almena Financial Brokers. You can also create an account with international institutions with local presences, such as Saxo Broker Dubai and Fidelity UAE.
Choose currencies with high liquidity
The MENA region consists of 18 countries, and each has its own central bank and currency. Examples include the Moroccan dirham, the Egyptian pound, and the Saudi riyal. All of these currencies are considered exotic currencies. Despite the increased interest in forex trading, the lack of liquidity of these currencies remains a problem.
Novice investors should trade currencies that have high liquidity to ensure orders can be executed smoothly. This points to the seven major currencies: the US dollar, the Canadian dollar, the Australian dollar, the Euro, the British pound, the Japanese yen, and the Swiss franc. These currencies are the most traded, and they have the highest liquidity.
As currencies are traded in pairs, forex traders in the MENA region should focus on trading major currency pairs, which are made up of the US dollar and any other major currency. For example, EUR/USD or CAD/USD. They can also opt for cross currency pairs, which are currency pairs made up of any two major currencies, excluding the US dollar. For example, GBP/JPY or EUR/CAD.
Do not overtrade
Traders can also avoid making hasty decisions by being prudent with their trades. Overtrading occurs when traders get excited about potential opportunities to profit from dynamic markets. Traders open too many positions at once, which makes it hard for them to manage afterwards. It is during these situations that traders are in grave danger of losing money — if the market suddenly moves against them, they will not be able to close out all their positions in time.
Another way traders can overtrade is by entering and exiting trades quickly, tens of times a day. This is similar to scalping, except these novice traders do not understand the strategy behind scalp trades. They may be making many trades a day out of anxiety, greed, and/or excitement. If their broker charges transaction fees per trade, a trader who goes in and out of trades tens of times a day may be at risk of losing all their profits to pesky management fees.
Be aware of your risk tolerance
Novice traders should have a level of self-awareness when they begin trading. Many do not set realistic goals, and they think they will be one of the lucky ones who make it with big profits. Realistically, over 80% of forex traders lose money on their trades.
Forex traders can minimise the potential for incurring losses by being aware of their risk tolerance. Know how much money you can afford to lose, and that is how much you should invest. Have a budget and stick to it. Do not let your emotions dictate your decisions.
In line with being aware of your risk tolerance, you may want to start small with your trades. While you are getting the hang of the market or your trading platform, you are prone to make mistakes and misinterpret price charts. If you start small, you can ensure any potential losses you incur will also be relatively small.
Remember that you can always increase your position sizes down the line and starting small is nothing to be ashamed of. There is fun in building small portfolios and going at your own pace, as opposed to starting too strong and losing your hard-earned money.
Learn from your mistakes
Finally, forex trading is a long journey. And the only way for novice traders to avoid losing money is by learning from their mistakes. You can keep a journal and make a note of all your trades, and you can see where you go wrong on trades where you lose money. Reviewing your past trades from time to time is a great way to personalise your own growth journey and improve your trading skills. Traders who do not make the same mistake twice are much less likely to lose money.
The overall economic health of the MENA region has been growing steadily. As more and more citizens of these countries are drawn to forex trading, it is important not to dive headfirst into the market without doing sufficient research. Forex trading, while lucrative, does contain risks. To ensure you do not end up losing all your money, you should always be sensible in your trades and use a reputable broker.