Financial markets are always interesting, never dull, but it could be said that the last few years have been more interesting than usual. The global financial crisis and the response from world central banks has led to financial events making the front pages of world news, when previously, this would not have been the case.
There is a good reason for this – the world of finance is more perilous than it has been in recent times. Stock markets can no longer be relied on to produce stable, solid returns and Forex markets are increasingly fought over by governments who all want to devalue their own currencies. As a result, there has never been a better time to learn how to survive in the markets.
The key to surviving in any market, not just Forex, is the preservation of capital. Only once capital has been preserved can a trader even think about growing wealth. Because growing wealth without thinking about capital preservation means taking on unwanted levels of risk.
A Guest Post By FXTM
The key to preserving capital in Forex is to gain a full understanding of leverage, since Forex markets need to be leveraged to make worthwhile profits. Learning about money management and the sort of leverage that should be applied means finding a method to stay alive even when the markets are causing havoc.
Know the little details
In the good times, traders can sometimes get away with not knowing everything about the markets they trade. Often, going with the flow and following the crowd is enough to take consistent money from the market.
However, such traders always become unstuck when the markets experience volatility.
It’s essential, therefore, to know the little details that go into Forex trading.
You should know that markets often gap through stops during periods of volatility and that spreads will widen around news releases or big events. You should also realize the true impact of commissions, fees and how these can change during times of stress.
Prepare for volatility
Just as you should know about the little details, you should have a plan of action for when markets start misbehaving. Have you worked out any triggers that suggest volatility may be ahead? Have you got a plan to stop trading or to diversify into other markets? Do you know how to hedge your positions in case of a market crash? Have you a backup strategy if your existing one starts experiencing lots of whipsaws?
Preparation is essential to surviving in the markets and should be put aside money management in terms of importance.