As we all know, there are many different ways to make money online — whether that be through starting a new business, focusing on affiliate marketing and blogging, or even putting your existing finances to work for you through good investments or stock/forex trading. With so much focus on each of these methods, today we are going to take a look at what the world of forex holds for those willing to put in the time and effort.
Forex is one of those activities that is very easy to learn, but hard to master. Even though it is not a good idea to get into forex with the preconception that profits are guaranteed, it is no secret that money is a key motivating factor for many traders. Whether it is to create a steady, additional source of income or build a primary source of money, the financial aspect always takes precedence over others.
However, traders are as diverse as the combinations of currencies, and the money-making process varies from one person to another. Therefore, we have decided to make a list of actionable tips that will help you make a profit out of your trading efforts. Here are five ways to maximize your forex profits.
Prepare Before You Begin Trading
Because the Forex market is based mainly on leverage – with some brokers offering leverages as high as 50 to 1, 100 to 1 or even 200 to 1 -, some traders might fall into the temptation of taking them for granted. Admittedly, even professional forex traders might experience this cognitive dissonance from time to time, because the willingness of the brokers to offer high leverages will make some traders believe that the risk is manageable, triggering what most experts call ‘’the gambler’s fallacy’’.
So, the best approach before entering the forex market is to create a detailed and comprehensive plan. Beginning with a practice account is recommended here, because it offers the freedom to experiment with lots of strategies without assuming any risks.
Another thing that forex traders should consider doing while practicing is reading a few forex trading books. Some of the best Forex books are the following:
- Forex Strategies: Best Forex Strategies for High Profits and Reduced Risks. Written by Matthew Maybury, this book is an excellent reading material both for beginners who want to step into the forex market with the right foot, or veterans who want to refresh their knowledge.
- The Little Book of Currency Trading: How to Make Big Profits In The World of Forex. Written by Kathy Lien, this book can act as an excellent auxiliary material for the previous title.
- Currency Forecasting: A Guide To Fundamental And Technical Models of Exchange Rate Determination, Michael R. Rosenberg. This book is great for people who want a short, concise introduction into the art of making forex profits and do not have the time to read longer titles.
These books are a good starting point if you want to learn how to maximize your profits. However, do keep in mind that they are pricey – but the price of the books are totally worth it on the long term.
Do Not Set Excessive Goals
If you hope to have any chances at profiting from forex in the near future, one of the best approaches is setting your expectations as low as possible. Unfortunately, most traders become nearly obsessed achieving a ‘’professional’’ level right from the get-go, as soon as they advance from demo accounts to handling real money.
As good as being ambitious is, the main problem is that having a big goal with no realistic plan to achieve it is essentially worthless to long-term growth. Instead, a wiser (and more recommended) approach for beginners who just got their feet wet in the forest market is building a realistic short-term goal and sticking to it for a while, preferably a month or two. As soon as you achieve that short-term goal, you can steadily advance to more and more ambitious goals until you reach the high tier of forex trading.
To conclude, if you are serious about achieving long-term goals, you should start with the little stuff first, and devise a comprehensive plan that will help you achieve those smaller milestones.
Many forex traders, particularly rookies, are more likely to get impatient or panic if a trade does not go their way as soon as they launch it. On the opposite side of the spectrum, if a trade goes better than expected, they get cocky and either rush to pull the plug right away on a trade that could have rendered a significant profit, or get greedy and spread their finances too thin in order to grow their revenue.
However, patience is a quality that requires a lot of persistence and effort to build. Using specialized tools, such as the Forex and CFD trading calculator, a pattern spotting and confirmation tool and so on can help you achieve a more methodical approach when it comes to trading.
The one thing you have to remember is that you are going to win some trades, or lose others. Do not stress too much about winning or losing – you will lose money at some point, and there is no way around that. Take satisfaction in the small things and on the accumulation of experience, as this attitude will pay on the long-term.
Understand the Tax Implications and Treatment
When it comes to forex, it is important to understand the tax implications and the legislation regarding the forex activity in order to be prepared when the dreaded tax day comes. Forex can already be a full-time occupation, so the best approach here is to consult a qualified accountant or tax specialist that knows the ins and outs of tax law.
A qualified professional can help you avoid any surprises and take advantage of various tax laws – the market-to-market accounting law, for example, which involves recording the value of an asset to reflect its real market traction. Another reason which makes hiring a qualified accountant the wise idea is that tax laws have a tendency of changing regularly, and keeping up with all the legal matters is quite hard for someone who has not had an education in this sense.
Diversify and Limit Your Risks
Another good approach to maximize your profits is diversifying, and at the same time limiting your risks. Here is what these two strategies involve:
- Diversification is key in maximizing your profits as much as possible. Traders who extend their portfolios across multiple markets have a better chance of making a profit. By applying this strategy and investing small to medium amounts in multiple currencies, you minimize your chances of suffering terrible losses – because, essentially, one loss is mitigated by a win on another. Even if you are absolutely sure that a particular trade has a chance of paying off, it is still a bad idea to put all of your money in a single basket.
- Familiarize yourself with ways to guarantee a profit on an already profitable order. Good tactics in this sense involve trailing stops, or limiting losses using limit orders or stop. As important as it might be to concentrate on winning, limit losses is more vital to your long term success as a trader.
The forex market is an attractive proposition for many ambitious entrepreneurs thanks to its decentralized nature, round the clock schedule and high leverage – which can be both an advantage and disadvantage, depending on how one approaches the issue, and very low requirements. Maximizing profits comes down to keeping up with tax laws, doing as much research as possible, setting realistic goals and, last but not least, practicing patience. Make sure to follow the advice listed in this article, and you will learn how to maximize profits in no time flat.
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