The moment you start something new is the very moment you start challenging yourself. Being a naïve trader in the Forex market, you have to think about the potential outcome of this business. Jumping into the retail trading industry without knowing the details and expecting to live your life like a millionaire is a very big mistake. You need to use a systematic way to master the art of trading. The majority of amateurs are losing money since they don’t know the perfect way to scale their trade. They are taking an unnecessary risk with great hope to earn millions of dollars. They don’t have any precise knowledge of the most common terms at trading.
Today, we are going to discuss four important terms that you must know as a currency trader. Instead of making things complicated, we will easily present the information.
Leverage
Leverage is one of the key reasons for which the retail UK traders are trading the Forex market. Due to the use of leverage, they can make a big profit. Let’s say, you have deposited $1000 in your trading account. Without any leverage, you won’t be able to buy more than $1000. Most of the reputed brokers offers leverage trading account to the retail traders so that they can trade the market with a big volume. Assume you have a trading account with 1:10 leverage. So, you will be able to trade the equivalent of $10K. But things are not as easy as it seems. You might access the high leverage trading account still you will be losing money. Unless you prepare a strategic plan for trading the live asset, you should never try to become a currency trader.
Spread
When you trade the CFD market, the brokers charge a certain fee for offering the trading environment. However, if you chose broker like Saxo, you are not going to pay high fees. Visit their website here to learn about their transparent pricing. Usually, the fees are taken by the broker in the form spread. This means you are bound to pay a certain amount of money to the broker to open a new position in this market. Most of the elite class brokers like Saxo offer a tight spread trading environment to the retail traders. On the other hand, the low-end brokers always charge higher fees and it becomes nearly impossible for the traders to make a consistent profit. If you want to cut trading cost, make sure you are trading the market with a tight spread trading environment. Stop trusting a low-end broker since they never help. They will widen the spread in the event of major news and you might lose a big portion of your capital.
Lot size
Lot size determines the pip value when you are trading. If you trade with 1 standard lot, for each pip movement you will earn or lose $10. Most of the time, the traders execute the trade with a big lot and eventually lose their entire trading capital. To make a profit from this market, you must learn to trade this market with a managed lot or else it will be tough to make a consistent profit. Always think about the safety of your investment. If you can survive in this market, you can make a big profit without having any hassle.
Money management
This is one of the most important things you need to learn as a trader. It helps you determine the risk factors in each trade. You might have the perfect trading system, but still, you are going to have some losing trades. Following the conservative trading method to earn a consistent profit is the only way to secure your trading capital. As a naive trader, you should limit the risk factors to 1% since it is one of the most efficient ways to trade the market without having any stress. Safety should be your priority because you never know the results of any trade. So, use money management to protect your capital.