No, this isn’t an article about how you can score big profits and become a forex millionaire overnight.
While there are plenty of opportunities to make money in the forex market today, the investment instrument is still not a way to get rich quickly.
Instead, it is a financial instrument that gives you the most flexibility when investing.
That said, you can increase your return on investment with every trade you make. There are strategies and tactics that can be implemented whenever you trade foreign currency pairs.
There are also secrets that you can add to your trading strategy too. We are going to review the best of these strategies and secrets in this article.
Check Your Broker
One of the cost elements that you can eliminate immediately when trading forex is the cost of using the services of your online broker.
Online brokers charge their customers differently depending on the investment instruments they offer, their trading platforms, and the policies they have in place.
These fees and cost elements add up. The higher your trading cost, the lower your return on investment (ROI) will be; you spend more money to get the same amount of profit for every pip you bank.
As you can see, lowering your costs is a great (and easy) way to boost ROI.
Thanks to InvestinGoal, comparing forex brokers is easier than ever. You can read complete reviews, understand every broker’s pricing structure, and even get insights on spreads and other cost factors without jumping through hoops.
You can, for example, read this AvaTrade review from InvestinGoal and immediately know that the online broker charges a small spread, offers swap-free accounts, and is one of the best when it comes to leverage and minimum deposit amount. From the review, it is clear that AvaTrade is a broker to consider.
Adjust Your Approach
You should always enter a position with a plan. At the very least, you need to know the target profit you are aiming for and the risk you carry in return. Many traders still enter positions without a clear plan, which is why they often react badly when the market suddenly changes.
Having a clear plan is a must. By making fine adjustments to the way you approach forex trading, you can alter your risk profile substantially. Aiming for 20 pips as your Take Profit (TP) and setting your Stop Loss (SL) at 40 pips is a mistake because that will put you on a 2-to-1 risk-to-return ratio.
What you want to do is the opposite. You want to set your TP at 40 pips and your SL at 20 pips to gain a healthier risk profile.
You can then use tools such as trailing stops and break-even stops to help you bank more profits while still limiting your risks.
Knowing your risk profile also lets you incorporate other, more advanced strategies for managing risks. You can use hedging or averaging to further manage your risk, all while keeping your risk-to-return ratio at a healthy level.
Limit Your Pairs
I know how tempting it is to explore different currency pairs and to try profiting from them. Each pair is affected by different currencies and market conditions, and there is nothing wrong with trying to capitalise on all of them.
However, trading multiple pairs at the same time also means keeping track of changes happening across multiple markets.
This isn’t always something you can do considering just how volatile the forex market can be. Even switching from one chart to another can cause you to miss critical moments on the market.
Ideally, you want to limit the pairs you trade to a maximum of three. Trading pairs that affect each other – such as EURUSD and GBPUSD or JPYUSD and EURJPY – will also grant you access to more trading options and opportunities.
You can manage the risks of one pair with positions in another. You can use advanced hedging to further limit your risks.
You can also benefit from the different profits each pair offers as well as the different spreads they come with.
Leverage the Leverage
Leverage is a two-edged sword. On one hand, you can boost your potential return with every trade by opting for higher leverage.
On the other, high leverage will cost you when the market turns unexpectedly. So, high leverage is best avoided, right?
Well, not really. For starters, regulating bodies now limit the leverage brokers can offer to their customers, so the market is a lot safer than it used to b.
In the old days, you could go for 10,000:1 leverage and lose thousands in a second; that is no longer the case today.
Setting your leverage just right gives you the right balance between added risks and higher returns.
At the end of the day, that is what forex trading is all about; balancing your risk-to-return ratio.
With the tips and strategies we covered in this article, you can maximize your profit and manage your risks like a seasoned forex trader.