A trader's journey is marked by crucial decisions, particularly at the outset, that significantly impact the chances of success. These choices are especially delicate since at least two of them must be made at the beginning of one's career, though they are certainly not irreversible. We're talking about broker selection, trading style, and currency pairs. Here's a comprehensive guide that will help beginners make these important choices.
How to Choose a Broker
To effectively choose a broker, it's essential to fully understand their role in the Forex trading landscape. Their function extends beyond merely executing orders on behalf of the trader and involves many other aspects. Understanding these aspects means being aware of your rights and being able to distinguish between a good broker and a poor one.
A broker is a company that offers intermediation services. As mentioned, they execute orders on behalf of traders. Additionally, they provide the platform—the software that enables trading activity. Through this platform, they offer charts and analysis tools. They also provide customer support and educational content. These last two aspects are often ignored, especially by beginners, when making their choice. Yet they are very important because they represent added value, essential support for newcomers.
So, how do you choose a broker? What parameters should be considered? The first criterion is honesty. The first question to ask is: is this broker honest or is it a scam? Generally, it's not difficult to find out. It's sufficient to verify that they possess a license. This is usually mentioned on the homepage of the official website or on the "About Us" page. The most solid licenses are those issued by entities such as CySEC, ASIC, and FCA. Consequently, if a broker cannot boast a license, it's legitimate to raise doubts about their honesty.
Obviously, it's not enough for a broker to be honest. Certainly, honesty is an essential prerequisite, but stopping there would be a serious mistake. Quality is crucial. How do you distinguish an efficient broker from an inefficient one? There are four criteria:
Economic conditions. This is a fundamental parameter because costs can significantly erode profits. Most brokers, it must be said, do not charge commissions on trades but instead apply a spread. This is expressed in terms of pips. Now, all brokers adopt a rather variable approach to the spread issue. It depends on the currency pair being traded. Generally, you should consider brokers that offer a low and narrow pip range. The spread is not the only element to refer to. The minimum deposit should also be considered, which is the amount required when opening an account. This represents the height of the entry barrier. A good minimum deposit consists of a couple hundred euros, although there are brokers that propose a minimum deposit of 100 euros.
Asset and instrument offering. This is another important criterion. It's obvious: a broker that offers many assets and many instruments gives the trading activity a broader margin of action. The trader, although a beginner, should only devote attention to those brokers that boast a very substantial offering, even if, at the end of the day, they usually invest in one or two pairs. The reason for this necessity lies in the fact that, during their trading career, they may change the currency pair or modify their approach, perhaps directing their efforts towards the so-called exotic currencies. The same goes for analysis tools. The trader may have based their strategy on the use of a couple of indicators but, again, the time will come when they will have to revolutionize their approach and change their trading method. At that point, they will understand that settling was a serious mistake.
Educational offering. This is also an important aspect, especially for beginners. The "pre-trading" study phase is crucial, as well as long and tiring. It also requires commitment across various channels: e-books, manuals, blogs, forums, and... video courses. Yes, video courses are important because, if well constructed, they represent a sort of tutorial for the aspiring trader. Now, almost all brokers offer educational content in the form of video courses, but only some excel in this field. Generally, the broker does its duty if it offers modular content, structured so that it can be used by both the least experienced and the more experienced, according to a progressive scale of difficulty. Above all, it does its duty if the content is created or curated by professional traders, who can establish a truly authoritative platform.
Customer support. This is an aspect that is often neglected but should always be taken into consideration. A good broker always offers a high-quality support service. To be such, the support service must be accessible through various channels: phone, chat, email, etc. Furthermore, it must be managed by professional traders. Only a professional can give useful advice to a beginner.
How to Choose a Trading Style
The second crossroads that an aspiring trader must face concerns the trading style. It may seem an abstract concept, but it's not at all. On the contrary, it's one of the factors that most impacts the hopes of generating profits and building financial freedom around Forex Trading. Obviously, there is no objectively better trading style than another, but rather the one most suitable for the individual trader. Therefore, the trader is not called to choose the best trading style but their trading style.
Before providing some advice, it's good to remember what the most common trading styles are:
Fast trading and scalping. This approach looks at an incredibly narrow time horizon. Those who engage in fast trading, or even scalping, keep positions open for a very short time, sometimes just a few minutes. The underlying goal is to exploit price volatility, as well as the bounce effect that follows every important event.
Intraday trading. Those who use this approach keep positions open for a few hours, and in any case always close them before the day ends. It's an intelligent approach as it allows avoiding the consequences of applying overnight rates, which tend to erode profits. It's still a risky approach because it has to deal with volatility, though not as much as scalping.
Swing trading. In this case, positions remain open for a long time, generally for the entire duration of the trend. We're talking about days or even weeks.
Long-term trading. This approach provides for a very extended horizon. The trader keeps positions open for many months, if not years. They aim, therefore, to earn a lot of money, few times (precisely because the trading frequency is very low).
So, how do you choose the most suitable trading style? You need to ask yourself some questions:
How much time can I dedicate to trading? The time variable is fundamental. Some trading styles, in fact, require the trader to spend more time in front of the PC. This is the case with scalping, fast trading, and intraday trading. It's not difficult to understand why. If the horizon is short, and therefore acts on volatility, the trader must maintain a firmer control over the market. If they use one of these three approaches, they must manage the unexpected, they must deal with frenetic operations. They cannot limit themselves, therefore, to programming the strategy and waiting. In reality, this is not possible in any case, but especially if the trader uses a "rapid" style. So, if you have a lot of time to dedicate to trading, you can consider scalping, fast trading, or intraday. Otherwise, you should direct yourself towards swing trading and long-term trading.
Do I have a lot of composure? As much as a certain narrative portrays trading as an activity where technique takes precedence over everything (and in a sense it's true, there's little space for creativity), the trader's personality plays a very important role. In a nutshell, it's necessary to choose a style that is consistent with one's character, or at least compatible. The quality that acts as a discriminant, in this case, is composure. Obviously, in all cases (regardless of style), the trader finds themselves facing considerable pressures, and must therefore display significant stress resistance. It's undeniable, however, that some approaches are more stressful than others. Generally speaking, it can be said that the faster the trading, the greater the pressures. The reason is simple: the restricted time horizon, and therefore the attempt to manage or even exploit volatility, forces the trader to make sudden, often emergency decisions. This is a test that can only be faced if you have a lot of composure. The other approaches, the slower ones, instead favor qualities such as attention to detail, interpretation and analysis skills, and patience.
How to Choose the Asset
Obviously, when talking about Forex Trading, by asset we mean the currency pair. Which currency pair to trade with? It's not easy to choose. Certainly, beginners, instinctively, opt in most cases for the euro-dollar, which is undoubtedly the most familiar even to the uninitiated, but it's not necessarily a 100 percent correct choice.
In this regard, it's necessary to make a distinction between major pairs and exotic pairs. The former are composed of important currencies, which refer to very large economies. All pairs that have the following currencies as terms are defined as major: euro, dollar, British pound, yen. In general, they enjoy great liquidity and are not very volatile. Exotic pairs, on the other hand, are composed of currencies that are not very widespread and that refer to small economies, or at least not major ones. The currencies in question are the New Zealand dollar, the Turkish lira, the Indian rupee, and many others. Exotic pairs enjoy less liquidity and are therefore more volatile.
As with the trading style, to choose the pair to trade with, it's necessary to ask oneself some questions:
Do I have, for any reason, previous experience with a particular pair? Even those who have not yet set foot in the market may have experience with a particular pair. Experience so to speak, obviously, since we're talking about theoretical notions. But it's obvious: if an aspiring trader has studied material that, perhaps in the form of an example, dealt with the euro-dollar, it's good to start with this pair. The advice, in this case, is not to venture with pairs of which you know absolutely nothing. The risk is, as easily understood, to rapidly lose your capital.
What is my trading style? This is a very important question, as it represents the real discriminant in the choice of the pair. To be clear, the correlation is less solid than one might hope, but it's true: each trading style can be associated with a type of pair. Specifically, if the approach is based on volatility, therefore aimed at exploiting volatility, it's good to choose less liquid and more volatile pairs. If, on the other hand, the style is slower, and tending to exploit consolidated trends, it's good to choose more liquid and less volatile pairs. In the first case – always if supported by a technical and cultural background at least sufficient – it's good to opt for exotic pairs. In the second case, it's good to opt for major pairs.
Am I more comfortable with technical analysis or fundamental analysis? This is also a fundamental question. Before investigating its implications, it's good to remember what is meant by technical analysis and fundamental analysis. The first consists in the study, with predictive purposes, of everything that appears on the chart, through the use of indicators (tools based on refined statistical models). The second, instead, consists in the study, with the same purpose, of what happens outside the market. A study, again, based on statistical models. Now, given that both disciplines are essential, there are some pairs that require very intense technical analysis activity, while others require very intense fundamental analysis activity. In the first case, we're talking about pairs that do not enjoy very efficient coverage by economic news, precisely because they are linked to less important economies. We're talking, therefore, about exotic pairs. In the second case, we're talking about pairs that enjoy almost total coverage. The reference, needless to say, is to major pairs.
