There is a common and popular rumor that traders should risk more to earn more in Forex day-trading. However, the real situation is not like this because a trader has to deal with a lot of issues in the market. Investors need to spend their valuable time acquiring more knowledge and experience. Day trading is thought to be a good way to make money quickly compared to other trading styles.
How to start Forex day-trading with a smaller investment and earn a bigger profit
To start day trading, an FX investor should be careful of a few issues to develop their trading skills and reduce losses.
1. Reduce the trade or position size
This is the first thing that every professional investor recommends to beginners. Newbies should reduce the size of their trades to reduce the risks. In day trading, the size of trade plays a huge role in determining the profits or losses. The size of a trade is determined usually by setting up the lot size (also known as volume size). The size or volume or lot will determine the profit or losses that a trader will experience per pip movement. Increasing the size or volume of a lot will surely increase the chance of getting huge profits. But what will happen if the graph moves against you? You will indeed face a massive loss in this case.Learn more about the product futures as this will allow you to find suitable trades at the perfect positions.
This is why the experts always suggest reducing the size of the trade so that the investors may minimize the losses. In addition, nobody can predict the currency exchange market with 100% accuracy. So, all that traders can do is protect their capital by adopting effective money management techniques.
2. Analyze the risk to reward ratio
Risk to reward ratio is a crucial factor in determining the probability of making profit or facing losses in a trade. For instance, if you calculate that the risk to reward ratio of a particular trade is 1:2, then it will indicate that if the market moves against your luck, you may lose $100, and if the market moves in favor of you, then you may win $200. Professionals opine that the minimum risk to reward ratio should be 1:2. If a trader can estimate less than that, such as 1:3 or 1:4, then youshould enter that trade. On the other hand, a higher value of risk to reward ratio should always be avoided because there is a greater financial risk attached to that trade.
3. Stop-loss or take-profit order
Stop-loss and take-profit limit can reduce your financial loss at a significant rate. Stop-loss orders are considered one of the best money management techniques because they can close a trade automatically whenever the market moves against the trader’s luck. To set up the stop-loss order, the investor has to predetermine a particular value. When the market exceeds the fixed value, the business will automatically be ended. For day traders, stop-loss and take-profit limit can be essential because setting up limits can minimize the risks. A take-profit order is similar to a stop-loss limit. A stop-loss limit is set to reduce the losses, but the take-profit order is set to collect the profit. Remember that when setting these values and try to set them at a logical point.
It can indeed be a lucrative career for the beginners, but most of them jump to this trading without acquiring proper knowledge about it. It is true that anybody can make money quickly from this business, but you should also keep it in mind that it is also a quicker way to lose all your money. So, before jumping to this business, make sure that you have studied a lot and have acquired a good amount of knowledge.