The greatest myth surrounding forex trading is that it is some sort of get rich overnight system or some kind of magical arrangement that transforms your bank balance from few hundreds to millions in a jiffy. Nope, that is not forex trading and actually that has a name of its own. It is called gambling. Forex trading, my friend is not gambling and unless you get that idea drilled deep into your mind, you are going nowhere in the forex world.
What is Forex Trading?
Forex trading is actually a business, like any other business that you would indulge in. And business means you are selling a product, idea or service for profit. Now suppose if you were involved in an automobile business, what would your work entail?
You would either be an automobile manufacturer, where you would be selling the automobiles created in your factory to wholesale dealers or if you were a dealer, you would be re-selling those cars to the masses for a profit.
Confusion about Forex Trading Concept
Forex trading also follows the general guidelines of any business. The only reason that people get confused here is because in every other business, you sell something and get paid in currency, whereas in forex trading you trade currency and earn profits (in currency).
To avoid confusion and make matters very simple, just understand that in the forex trading business, you make profits when you make more winning trades and lose when your winning trades are lesser in number than your losing trades. So it is basically just a matter of balancing your wins above your losses and if you succeed in doing that you will make a profit.
Expenses in Forex Trading Business
Every business takes certain expenses to run and operate smoothly on a day to day basis. Forex trading also has expenses to run and these can be roughly classified into 4 categories:
1) Expenses in learning Forex trading
2) Equipment, software and other such set-up costs
3) Expenses paid to the retail forex broker by way of broker commissions/ spreads
4) Amount of money spent on losing trades
The problem with forex trading is that majority of the newbie traders refuse to accept that it can be conducted systematically like any other business. They either imagine that forex trading involves no costs and is a way to double, triple or multiply your money OR they erroneously believe that successful forex trading means always winning your trades. Both expenses and losses are an integral part of the forex trading business like all other businesses and the trick to be successful here is to simply manage to keep your inflow greater than your outflow.
Getting Profit Out Of Forex Trading Business
1) Win more trades than you lose
2) Win more money than you lose
If you have the slightest practical experience in forex trading, you will realize that option #1 is easier said than done because the markets are not in your control and you certainly cannot manipulate them to give you more of winning trades.
The second option is practically achievable and for this you simply have to reduce the risk that you are taking with your money. You have to discipline yourself to settle for a risk reward ratio of 1:2, because in this case you need to make a winning trade for only 3-4 times out of every 10 trades that you make in the market.
One thing that’s particularly crucial to keep in mind is that you don’t have to be always correct to make money with forex trading. You merely need to use the potential of proper risk reward balancing and take care to keep your losing trades much lesser in number.
Important Difference between Regular Business and Forex Business
In a regular business you may become more successful in the rat race by learning more tips or by gaining more skills. But forex trading cannot become successful by acquiring more skills than your counterparts. You will have to be patient, use an effective winning strategy and also keep consistent in your efforts.
How to Begin Your Forex Trading Business?
There are a few words that would sum up all the tips for you: patience, consistency, right mind set and faith / trust in your winning strategies. Do not keep jumping from one system to another and do not gamble your hard earned money away. Keep cool and keep trading and you will succeed.