Is Forex Trading Good for Beginners?
Today, investments attract more and more people all over the world. It is not surprising that platforms such as Forex are becoming indispensable for discovering the investment market.
There is no doubt that this website is great for both novice and experienced traders. By following some rules, even with a small capital, you can earn good money on investments.
How to Start Investing in Forex for a Beginner?
There are several rules for investing in the stock market. In this article, you will find several methods to follow when investing in the stock market if you are a beginner:
- Determine your budget
Initially, you need to determine your budget and stick to it. Identify the exposure level of your assets and find a good MetaTrader 4 download PC for convenience. It can vary from 5% to 30% of your capital or more if you are not afraid of volatility, depending on your capital allocation.
Your “net worth budget” depends on several factors, including your investment horizon (the longer you invest, the better) and your risk aversion. Investing in the stock market should be considered for the long term.
In addition, you won’t need to look at prices every day: it may be enough to look at them every three months. Looking at your wallet too often can lead to unnecessary panic and bad decisions.
- Diversify your investments
Diversify at least 40 stocks (40 different companies, industries, and continents). This is certainly a difficult art (called stock picking) because it is very rare to beat the market, especially in the long run.
So it’s even better to diversify into a simple distribution of 1 to 4 trackers or 2 good insurance companies in manageable management.
Indeed, many of those who lost money in the stock market were unwise: there are certainly people around you who “put” everything on one company and came to the conclusion that the stock market is too risky. Remember that by diversifying, your portfolio will be less volatile, and you will limit your risk. It is clear that you are not “betting” or “playing” on the stock exchange (we are not at a casino), but you are investing.
- Be calm about market changes
Do not give in to euphoria or panic. Remain calm; you have an investment horizon in a few years. Markets have mood swings, so what? There will be regular “market sighs” of 5% (several times a year) and corrections of more than 10% (every year or so).
- Apply the DCA method (Progressive and Programmed Investment).
You must admit that it is very difficult or even impossible to predict the market and anticipate its upward or downward movement (what is called market timing) because too many unpredictable parameters come into play.
Thus, to get rid of this uncertainty, it is preferable to practice planned and progressive investments.
In practice, you will invest for at least 6-12 months to reach your equity budget as defined in point one. And then, continue to invest regularly if possible (monthly or quarterly).
However, statistically, it is better to invest all at once (lump investment) in terms of efficiency, but emotionally, it is more difficult than investing in stages. Remember, the number one risk in the stock market is investor behavior!
In practice, a market (like the CAC 40 or the World Index) could very well grow +20% per year, going from -5% months or even a -10% quarter. So, you have to be patient, and you can just mechanically (quarterly) rebalance your allocation to get back to the target defined at first.
This article has been published in accordance with Socialnomics’ disclosure policy.
