Financial markets are more accessible than ever thanks to mainstream brokers opening up their trading platforms. The stock market is livelier than ever, with plenty of IPOs and a lot of moneymaking opportunities to seize.
If you’ve been trading in the stock market, transitioning to the forex market isn’t that difficult. You’re basically replacing shares with foreign currencies and switching from one fundamental analysis to another. To help make the transition smoother, here are some of the things you need to know before you start.
Know the Basics
There are some basics to cover when transitioning from the stock market to today’s bustling forex market, starting with the fact that you can go Long and Short more freely when you are trading forex pairs. You also have more pairs to explore; there are hundreds of foreign currency pairs to trade right now.
Next, you need to understand that the forex market moves at a much faster pace – and makes bigger leaps – compared to the stock market. An important announcement by the Fed, for instance, can move EURUSD by a substantial margin. That’s how you know that you can be much more profitable trading in the forex market.
One last thing to understand about the forex market is the bigger risk associated with trading foreign currency pairs. Since you stand to gain more profits, you also face bigger risks along the way. However, you have more options when it comes to risk management, so the end result is relatively balanced based on risk-return trade-off.
Alter Your Fundamentals
When trading forex pairs, you need to look at the bigger picture. You can no longer rely on information about a company or a market segment to understand market movement. As mentioned before, announcements from central banks, changes in microeconomic factors, and general news about countries and their currencies have real impacts on the market.
This means you need to make adjustments to your news sources and how you perform fundamental analysis. Top resource centers like Wall St. Nation are the ones to visit if you are looking for reliable sources of forex-related news.
In the case of Wall St. Nation, you also get insights on how news and updates may affect the market. This means you can prepare for big market leaps and major changes better.
Once you have the fundamentals covered, it is time to make adjustments to your technical analysis. In forex trading, technical indicators have the ability to reveal a lot about foreign currency pairs. Moving Average, for example, presents a bird’s-eye view of the pair you are tracking. Other indicators like RSI and MACD are also designed to help you make the right trading decision at the right time.
At the end of the day, transitioning to forex trading is about adjusting how you make your trading decisions. With the basics covered, new sources of news and updates added to your list, and technical indicators in your arsenal, the transition itself will not be difficult. Once you have completed the process, you can begin banking more profits from both financial markets.