Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.

Forex Market: A Complete Step-by-Step Guide & How does it works?

Introduction.

The word Forex is formed from the combination of the words foreign currency and trading (exchange) in English. Foreign exchange is the name given to the process of converting a country's currency into another country's currency, usually for reasons such as trade, trading, or tourism.

 According to the last three-year report of the Bank of International Settlements (BIS), which is kind of the center of central banks around the world, the daily forex trading volume has reached 5.1 trillion dollars.

What is Forex Market?


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


The Forex market is the market where foreign exchange transactions take place. Whether they realize it or not, currencies are very important to many people in the world because foreign exchange has to be bought and sold to do foreign trade and international business. If you live in the USA and want to buy cheese from France, you or the brokerage firm must pay the French in euros (EUR).

 The same is true for travel. A French tourist cannot pay euros to see the pyramids in Egypt because it is not the locally accepted currency. Like the cheese buyer, the tourist must convert their euros to Egyptian pounds at the current exchange rate.

A unique feature of this international market is that there is no specific central market for currency trading. Instead, currency trading takes place over the counter, known as "over-the-counter (OTC)". Over-the-counter means computer networks between traders around the world without any central location. 

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The market is open 24 hours a day, 5.5 days a week, and currencies are traded (almost in all time zones) in the financial centers of the world, such as London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. In other words, when the trading day ends in the USA, it just begins in Tokyo and Hong Kong. In this way, the forex market can be extremely active at any time of the day and prices are constantly changing.

Brief History of Forex.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


The forex market as we know it today is a fairly new market, unlike stock markets that go back centuries. Of course, forex in the simplest sense of the word (where people exchange one currency for another to gain a financial advantage) has been around since nations began printing money. However, today's forex market is a relatively new and modern invention. 

With the Bretton Woods agreement signed in 1971, more major currencies were allowed to exchange freely with each other. The values ​​of currencies have been constantly changing, which has ultimately led to the development of currency trading and trading services.

Commercial banks and investment banks do most of the transactions in the forex markets on behalf of their clients. However, in these markets, individual and professional investors can also benefit from the speculative opportunities necessary to convert one currency to another profitably.

Spot, Forward, and Futures Markets.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


Today, there are 3 different contexts in which companies and individuals can trade foreign currency: the spot market, the forward market (forward currency), and the futures market (forward contracts). The spot market has been the largest market used for foreign exchange transactions because it is also the underlying asset for forward and futures transactions.

 In the past, futures markets were a more popular market for traders as they were available to individual investors for a longer period of time. However, due to the electronic environment of transactions and the significant increase in the number of forex brokerage houses, spot markets have overtaken futures markets and become the favorite market for individual investors and speculators. 

When people talk about the forex market, they usually mean the spot market.

In simpler and more detailed terms, the Spot Market is the market where currencies are bought and sold at the current price. This price, determined by supply and demand, is a reflection of many things, such as the interest rate, economic performance, the outward appearance of the local and international political situation, and the performance of one currency against another. 

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When an agreement is reached between the two parties, it is called a "spot deal". This is the name given to an agreement where one party supplies an agreed amount of foreign currency to the other party and receives the other agreed amount of foreign currency at the agreed price. 

When a position is closed, the swap is done in cash. Although the spot market is generally known as the market where current transactions are realized rather than the future, it takes 2 days for these transactions to be settled.

Unlike the spot market, currencies, as we know them, are not traded in the forward and futures markets. Instead, contracts are traded that represent the right to buy a currency at a specified unit price at an agreed future date.

In forward markets, contracts are bought and sold in a method known as over-the-counter (OTC), in which two parties determine the terms of the agreement between them.

In futures markets, futures contracts are traded based on a standard size and clearing date in commodity markets such as the Chicago Mercantile Exchange. The institution responsible for overseeing these markets in the USA is the National Futures Association. 

Futures contracts contain clear details such as the number of units traded, delivery, and settlement dates, but also include minimum price increases that cannot be changed according to the individual. 

The exchange on which the transaction is made acts as a counterparty providing customs permission and clearing to the trader.

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Although both contracts are compelling, in general, cash is cleared in the relevant exchange at maturity. However, it is also possible to buy and sell before maturity. 

Forward and futures markets are markets that can protect foreign exchange traders. Generally, large international companies use these markets to protect themselves against future exchange rate fluctuations, but it should be added that speculators also use these markets.

Forex as Hedging Transaction.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


When companies doing business in foreign countries buy and sell products and services in a place other than the domestic market, fluctuations in the exchange rate pose a risk for them. Forex markets, on the other hand, offer the opportunity to fix them in a currency that can be traded to hedge this risk.

Traders who want to do this can trade in the forward and swap markets, where they can lock in a specific exchange rate. For example, suppose a company plans to sell US-made blenders to Europe and the Euro/Dollar equivalence is 1 at that time (EUR/USD=1$1).

While this blender costs $100 to produce, the US-based company plans to sell it to Europe for 150 euros, which is pretty competitive for those produced in Europe. If this plan is successful, the company will make a profit of $50 because the euro-dollar equivalence is 1. 

Unfortunately, the dollar starts to rise and rises until 1 euro equals 0.80 dollars.

The problem the company is currently experiencing is selling the product at a competitive price, as the production cost is still $100. That is, if he sells for 150 euros to find a place in the market, he will have made less profit since 150 euros is now equivalent to 120 dollars due to the exchange rate. Expected profits fell as a result of a stronger dollar.

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The Blender company could have mitigated this risk by shorting the euro and buying dollars when they were on par. Thus, even if the dollar increased, the profit he made from the dollar he had could have helped him to cover some of the loss he had obtained from the sale of the product. 

If the dollar had depreciated, then the profit from the sale of the product would have increased and thus the loss from the purchase of the dollar would have been partially reduced.

In this way, a hedging transaction can be made in the currency futures markets. The advantage of futures contracts is that they have a certain standard and clearing is handled by a central authority.

 However, FX futures may have lower liquidity (cash-out rate) than forwarding markets, which are decentralized and exist in the interbank system around the world.

Forex For Speculation.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


Factors such as interest rate, foreign trade, tourism, economic power, and geopolitical risk affect the supply and demand of currencies, which is how daily fluctuations in the forex markets occur. Changes in these factors reveal the opportunity to profit from increases or decreases in exchange rates against each other. 

Predicting that one currency will fall in value is naturally a prediction that another will rise because exchange rates are processed in pairs.

Consider a trader who expects rates to rise higher in the US than in Australia, while the AUD/USD (Australian Dollar/USD) exchange rate is 0.71, which is enough to spend 0.71 USD to buy 1 ASD. 

The trader believes that rising US interest rates will increase the demand for the US dollar and therefore the AUD will lower against the USD, meaningless US dollars will be needed to buy 1 AUD.

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Imagine if the trader was right and interest rates went up, so the Australian dollar decreased to 0.50 against the US dollar. This means that 0.50 USD can be purchased for 1 AUD. If the investor took a short position against the AUD and bought the USD, he would profit from this change in value.

Currency as an Asset Type

Currencies have two important characteristics as an asset type:

  • You can profit from the interest difference between two different currencies.

  • You can profit from changes in the exchange rate.

An investor can profit by buying the currency of the higher interest rate difference in two different economies and taking a short position against the other. 

Before the 2008 crisis, it was extremely popular to take a short position against the Japanese Yen (JPY) and buy the British Pound due to the high-interest rate difference between them. This strategy is sometimes called "interest arbitrage" (carry trade).

Why Can We Buy and Sell Currency?


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


In pre-internet times, it was very difficult for individual investors to trade foreign currency. Currency traders were often multinationals, hedge funds, or high-income individuals because forex trading required a lot of capital. 

With the advent of the Internet, a market has emerged for individual investors to receive retail services, and thus, access to forex markets has become easier either through banks or through secondary markets created by brokerage houses. 

Most online brokers and forex firms offer leverage trading with a small account balance.

Risks of Forex Market.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


Trading currencies can be both risky and complex. The interbank market, known as the interbank market, is subject to varying levels of regulation and forex products do not have a specific standard. In some parts of the world forex trading is almost completely unregulated.

The interbank market is briefly the market where banks trade with other banks around the world. It is the banks themselves who decide to take a country risk and credit risk, and they all have internal procedures to assure themselves whenever possible. 

Regulations such as the establishment of these systems are sector-based and are implemented for the protection of all banks.

The pricing mechanism is based on supply and demand, as the market is created by each bank offering a bid and ask price for a particular currency. The transaction flows within the system are so large that it is very difficult for swindlers or cheaters to influence the price of a currency.

Most of the retail traders who make small trades usually make their trades through semi-regulated forex firms. These institutions can, and sometimes do things like repricing and investing against their customers. 

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There may be some government and industry controls depending on the location of the currency buying dealer known as the dealer, but these protections are inconsistent around the world.

Most individual investors are compelled to find a forex firm and research to see which countries it is regulated in. It's also a good idea to look at what kind of account protection they have in case of a crisis or the bankruptcy of the brokerage firm.


Advantages and Challenges of Forex Trading.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


  • The forex market, which is the largest market in the world, is very difficult to manage due to the very high liquidity.

  • You do not need to go to the exchange offices to invest in foreign currency. You can manage your account and make transactions from your computer or even your smartphone. In other words, you can perform your transactions wherever you have internet access. And 24 hours a day, 5 days a week.

  • Apart from currencies, you can trade in commodities such as gold, silver, and oil. In addition, you can earn not only one-way but also two-way transactions, from buying and rising, selling and decreasing.

  • The commission you will pay is very less in forex compared to exchange offices.

  • You can perform your transactions with the leverage ratio that you can set from 1/1 to 1/100. However, since high leverage is both advantageous and risky, you must get good support in the forex market to open the right trade with the right leverage ratio. In addition, even though you have the opportunity to open trades up to 100 times the amount you deposited with leverage, if you experience a loss, your loss will not be more than the amount you deposited.

Advantage:

 Forex markets are the largest in the world in terms of daily trading volume and therefore they offer the highest liquidity. This makes it possible and easy to exit a transaction with a small buy and sell difference in less than a second under most market conditions at any of the known exchange rates.

Challenge:

Banks, brokerages, and firms allow high leverage in the forex markets. This means that traders can trade even if very few of the amounts they control are their own. 100:1 is a high leverage ratio, but it is possible to see it in the forex markets. 

So that means you can trade 100 times your money and win or lose at the same rate. A trader must understand how using leverage brings risks to any account. Due to excessively high leverage levels, many companies had to go bankrupt.

Advantage:

 Forex market is open for trading 24 hours a day, 5 days a week, starting in Australia and ending in New York. Sydney, Hong Kong, Singapore, Tokyo, Frankfurt, Paris, London, and New York are major centers.

Challenge: 

Trading foreign exchange productively requires an understanding of the basic principles and indicators of economics. To understand the fundamental principles that determine the value of currencies, a currency trader must understand the economies of various countries and their interdependencies in a big picture way.


How to Play Forex?


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


Learn The Basic Principles Of Trading Forex.


 1. Know basic forex technology.

Forex is the name of the general market in which country currencies are exchanged with each other. In Forex trading, you sell one currency to buy another currency.

A short position means you want to buy the opposite currency and sell the base currency. In other words, it is selling dollars and buying Rs.

The buying price is the price at which your broker is willing to buy any currency in a particular currency.

The selling price is the price at which your broker is willing to sell any currency in a particular currency.

The exchange rate difference is the difference between the purchase price and the selling price.

2. Read Forex quotes.

Forex quotes have two numbers: the buy price on the left and the asking price on the right.

3. Decide on the currency you want to sell and buy.

Make forecasts about the economy. If you believe the American economy will continue to weaken, which is bad for the dollar, you can sell dollars to buy the currency of a country with a strong economy.

Review the trading positions of countries. If a country has goods in demand then that country is exporting a lot of goods to make money. This trading advantage increases the strength of the country's economy and thus the value of the country's currency increases.

Take politics into account too. If there is an election in a country and if there are steps related to financial responsibility on the agenda of winning the election, then the value of that country's currency will increase. 

At the same time, if the country's government softens the regulations for economic growth, there will be an increase in the value of the currency.

Read the economic reports. Countries' gross domestic product reports or reports on other economic factors such as employment and inflation affect a country's currency value.


Open An Online Forex Account.


1. Research different forex companies. Consider these factors when choosing a forex firm:

Try to find someone who has been in the industry for ten years or more. Experience shows what the company does and how much it cares about its customers.

Check whether the work of brokerage companies is overseen by supervisory boards. If your broker is subject to government control spontaneously, you should not doubt your broker's honesty and transparency.

See how many products the Forex firm offers. For example, if the broker buys and sells bonds and futures assets, this indicates that the broker has a large client base.

Read reviews about the Forex firm but be careful. Disregarding moral values, forex companies often go to websites and write positive reviews about themselves to increase their own reputation. Reviews help you learn about the company, but it's always good to be doubtful of such comments.

Visit the Forex firm's website. The website should look professional and the links should be active. If there is a text like “Coming soon” on the website or it does not look professional, stay away from this company.

Check the transaction costs for each trade. Also, find out how much your bank will charge to transfer funds to your forex account.

Focus on the key points. You will need good customer support, ease of operation, and transparency. At the same time, you should enter the attraction area of ​​forex companies with a good reputation.

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2. Learn about opening an account.

You can open a personal account or choose a managed account. If you have a personal account, you can manage your transactions yourself. In an account managed by someone else, your broker trades on your behalf.

3. Fill in the required documents.

You can request the documents by mail or download the ones in PDF file format. Be sure to check the transfer costs transferred from your bank account to your commission account. These fees cut your profits.

4. Activate your account.

Usually, brokers will send you an email with a link to activate your account. Click on the link and follow the necessary instructions to start trading.


 Start Trading.

1. Analyze the market. You can try many different methods:

Technical analysis: Technical analysis involves examining historical data to make predictions about the currency by looking at charts or past movements of the currency. You can access these charts through your forex company.

Fundamental analysis: Fundamental analysis involves reviewing the economic fundamentals of the country and using this information in trading transactions.

Sentiment analysis: Sentiment analysis is highly subjective. The underlying reason is to try to analyze whether the market is in a downtrend or bullish trend. Even if you don't always understand the market sentiment, you can make good predictions that will affect your trading.

2. Determine the amount of money you will play Forex

Depending on the Forex company's policies, you can start trading with variable amounts of capital. You usually need to deposit at least $100 in your account to start playing Forex.

For example, if you want to trade $100,000, you need to deposit $1,000 into your account.

Your gains and losses are added to or deducted from your account. For this reason, as a general rule, never invest all of your cash in a particular currency pair. Investing 2% of your money may be enough to get started.

3. Give your orders.

You can place different types of orders:

Market orders: In market orders, you assign your broker to make your purchases and sales at the daily market price.

Limit orders: These orders allow your broker to trade at a certain price. For example, you buy the currency when it reaches a certain price, or you sell it when it drops to a certain price.

Sell ​​orders: A sell order is to buy the currency above the daily market price or to sell the currency below the daily market price to cover the loss.

4. Monitor your profit and loss.

Above all, never get emotional. The foreign exchange market is volatile and you can experience a lot of ups and downs. The important thing is to keep doing research and stick to your strategy. You will profit eventually.


 Ways To Make Money With Forex.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


1. Planning.

Trading' is planning, which every common sense person is aware of. However, many people forget this common belief when looking for ways to make money quickly. You should plan your transactions ahead of time and then act according to the plan. The more you change your plan, the more trouble you'll get into, and the less likely you are to make any money.

2. Patience.

Patience is the number one key to making money in Forex. Patients should be considered together with careful 'risk management. Sometimes luck smiles at you and you make a profit, sometimes it takes a lot of time. If you open every position expecting a profit, you will come out with more dice than ever before.

3. Use the Big Picture.

It is a fact that in forex you are free to use any timeline you want. Using a longer time frame would be better for getting a reference point. Daily and weekly charts and plans for Forex will be more stable for beginners. 

Look at the daily charts and plan your trades according to the daily trend. Set yourself a 'Stop' point. When prices change direction, you won't be left stunned and unsure of what to do.

Of course, no one has a way of predicting in which direction and how fast prices will move, but although this method sometimes only makes you lose profit as a precaution, it keeps you from more when it comes to lose.

4. Making money with Social Trading.

In this method, platforms that offer traders the opportunity to trade, also create online networks that allow each market player to interact with the other, creating systems that allow winning traders to tips and share their knowledge. 

Investors who are not yet sure of their own strategy can follow successful members and manage their own transactions and analyze their strategy. With the power of social sharing, they can work together shoulder to shoulder to always raise the bar for total success. Although this method sounds very nice and effective, even determining who to follow and how is an important task.

 Everyone has a different profit target, time to reach this target, amount of capital. Again, when it comes to emotional factors, everyone has patience, strength to withstand stress, and ambition to varying degrees.

After all, any forex trading involves serious risk.

5. Closing.

Of course, it is not in pride that a system is so popular. Individual investors certainly have a chance to make money in the financial markets. Forex is a complex and intricate medium, but many jump into the market without the necessary knowledge and experience. 

Those who are interested in this market, if they want to trade by taking risks, should understand that they should not step in without having sufficient knowledge and understanding of the trading systems in Forex. 

We also recommend that they become familiar with using the Demo account, as they should act on these accounts assuming that the money in their hands is real when trading. The forex market can be a good opportunity to earn some additional income.


What are the Secrets of Success in Forex?


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


1. Make sure to use stop/loss levels in your trades. Before you open a trade, accept a certain amount of loss in case your trade goes wrong, keep your loss at a minimum level so that you can take this loss more easily in the next trade.

2. Do not risk more than 5% of your balance in your transactions. In other words, decide how many lots (trading volume) you will open, without risking losing a large part of your balance in case your trade goes wrong. So you can continue trading with your high margin level.

3. Your risk/return ratio should be at least 1/1. For example, your take profit and stop/loss orders should be 40 pips below and 40 pips above the trade level you opened. So you can neutralize your loss on a trade with your gain on a single trade.

4. Set realistic goals. For example, doubling your balance in 1 year is not a realistic target for us. Determining your target in an achievable way will both enable you to make more accurate transactions and will please you with positive returns in your transactions.

5. Follow the important developments closely, try to interpret and analyze the market. So, always try to add something to yourself. There is no such thing as permanent profit in the Forex market. However, by doing what we have said, it is possible to keep your losses at minimum levels.

If you consider these 5 items while making your transactions, believe that the success rate in your transactions will increase.


10 Ways to Avoid Losing Money in Forex.


Forex Market: A Complete Step-by-Step Guide From Beginner To Advanced.


The global forex market is the largest financial market in the world with an average daily trading volume of 4 trillion dollars. The popularity of Forex attracts many traders, from novices just beginning to learn the financial markets to seasoned professionals.

 Because Forex trading is so easy (daily sessions, substantial leverage, and relatively low costs), it's equally easy to lose money in this market. This article contains 10 ways to prevent traders from losing money in the competitive forex market. 

(There is no special program focused on Forex, but there are still some advanced training alternatives that forex traders can benefit from)

1. Do Your Homework – Don't Try To Run Without Crawling.

Just because it's so easy to start trading Forex doesn't mean you won't do the due diligence. Learning Forex is a factor that directly affects an investor's success in the forex markets. 

Although your best way to learn is to practice and experience real trades, a trader has to learn everything possible about the forex markets, such as geopolitical and economic factors that can affect their currency. 

Your assignment can be described as an ongoing effort because an investor must always be prepared for and adapt to changing market conditions, regulations, and world events. Part of this research process includes developing an investment plan.

2. Take Your Time to Find the Most Reputable Agent.

The forex market has less margin of error compared to other markets. Therefore, when choosing an intermediary forex company, you should take care to work with certified companies approved by official institutions in our country.

Investors are also aware that each of their intermediaries; should carefully examine support ratios, commissions from transactions, amount of money required to start, and withdrawal policies.

 The companies' customer service representatives will answer all your questions about the company's services and policies. ( Try to discover the best ways to find the broker that will lead you to success in the Forex market)

3. Use a Demo Account.

Almost all trading platforms have a demo account. This is sometimes called the simulation account and sometimes the demo account. These accounts allow traders to trade virtual currencies as if they were real. The most important benefit of a demo account is that it enables traders to master their trading techniques.

Certain things can happen to the investor's account (and the investor's confidence) that can harm the investor, such as pressing the wrong button when opening or closing a position. 

These events are not uncommon, for example, a new trader may accidentally open a new position instead of closing a losing position. Making more than one mistake in order entry may cause large and unprotected losses. 

That's why practice can make you perfect: It's good to work on order entries before putting real money into it.

 4. Keep Your Graphics Clean.

After opening a Forex account, it may seem tempting to take advantage of all the technical analysis tools the trading platform has to offer. While many of these indicators are great tools for the forex markets, you should keep in mind that you need to keep your analysis techniques to a minimum to use them effectively.

 Using the same type of indicators (for example, two variable indicators, two oscillators) would be irrelevant, and they could produce different results. You should avoid such situations.

Any analysis technique that is not used regularly should not be included in your charts. In addition to the tools you use in your graphics, you should also pay attention to the general appearance of your workspace. 

The colors, fonts, and types of price bars (such as line, spacing bar) chosen should be easy to read and understand so that the investor can respond more effectively to changing market conditions.

5. Protect Your Investment Account.

Although the main focus in forex trading is to make money, it is also very important to learn how not to lose money. 

Proper money management techniques are essential to a successful investment. Many experienced traders agree that anyone can make money no matter what price they enter a position. The important thing is when to withdraw from the investment made.

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The easiest way is to accept your losses and focus on your future. Always using a protective stop loss is an effective way to secure your losses to stay within an acceptable amount. Investors can also set a maximum daily loss amount and close all existing positions and not start new investments until the next trading period.

 Although investors make plans to limit their losses, it is equally important to protect profits.

6. Start Small in Real Investments.

Once an investor has done their homework, spent time with the demo account, and created the investment plan, they can start investing in real-time, which means putting their real money in real danger. 

No matter how many demo accounts you are into, it will never be as effective as real investing and you must start your real investments with small amounts.

Various factors such as your mood cannot be fully understood and calculated unless you start investing in real. Starting with small amounts, an investor can evaluate his own investment plan and emotions and gain more experience in managing his own listings without risking his entire trading account throughout the process.

7. Use Reasonable Advantages.

Forex trading is unique because of the advantage it offers to its participants. One of the reasons forex trading is so attractive is that investors can potentially make huge profits with very small investments like 50$. Advantage can make big gains when used correctly, but it can easily increase your losses if used incorrectly. 

A trader can control the purchase ratio by determining the position amount on his account. 

8. Keep Good Records.

A trading journal is an effective way to learn about both your gains and losses in Forex trading. A diary of trading activity that includes dates, instruments, profits, losses, and even more importantly, an investor's own performance and feelings, can be a great help to the trader's success. 

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When viewed regularly, a trading diary provides important feedback for you to learn everything. Einstein's quote sums up this necessity: “Insanity is doing the same thing over and over and expecting a different result each time”. 

Without a trading diary and good records, the investor is likely to making the same mistake over and over again, failing.

9. Know Tax Applications and Similar Transactions.

In forex trading activities, it is important to understand tax implications so that you can be prepared at tax time. Getting advice from an experienced accountant or tax professional can prevent surprises at tax times and help individuals take advantage of a variety of tax laws. As tax laws are changed regularly, establishing a prudent relationship with a trusted professional will help you manage all tax-related matters.

10. Take a Business Look at Your Forex Investments.

You must view your Forex investments as a business. Investors should also not be overly emotional about their gains or losses and should treat each investment as if it were another day at work.

 As with any business, forex trading has some expenses, losses, taxes, risks, and uncertainties. Also, just as small businesses rarely succeed overnight, a forex trader must know that this rarely happens.

 Planning, setting realistic goals, being organized, and learning from both your successes and failures will ensure a successful long-term career as a Forex trader.

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