Trading forex and CFDs carries real risk. Before placing a real trade, you need to understand what you’re trading, how leverage affects your position, and how much you’re prepared to lose if the market moves against you.
You don’t need to predict every market move to become a better trader. A more useful starting point is understanding how your trades work, managing your exposure and having a plan before you open a position.
Disclaimer: Trading involves risk. The value of financial instruments can go up or down, and you may lose money.
Start With a Demo Account
If you’re new to trading, a demo account gives you a way to learn the platform and practise placing trades with virtual funds before using real money.
You can use it to become familiar with opening and closing positions, monitoring trades and understanding how your decisions affect a position.
The goal of demo trading isn’t to prove that you can consistently predict the market. It’s to give you time to understand the mechanics of trading before you put your own money at risk.
Understand Leverage Before You Trade
Leverage allows you to open a larger position relative to the funds required to open it. It can increase your potential gains, but it also increases the effect of market movements on your losses.
Before using leverage, understand how it affects your position and what could happen if the trade moves against you. Read our guide to what is leverage in forex trading for a closer look at how leverage works.
Keep Your Position Size Under Control
A trade shouldn’t be larger simply because you feel confident about it. Decide how much you’re prepared to risk before opening a position, then choose a position size that fits within that limit.
It’s also worth avoiding the temptation to increase your position because a trade is going well or add to a losing position because you want to recover the loss. Keeping your exposure under control means one trade is less likely to have a disproportionate effect on your account.
Use a Stop-Loss
A stop-loss lets you set a level at which a position should be closed if the market moves against you. Setting that level before entering a trade can help you decide how you want to manage the downside rather than making the decision while watching a losing position.
A stop-loss doesn’t guarantee that your position will close at exactly the price you selected. Market conditions can affect execution, particularly when prices move quickly, so it’s important to understand what a stop-loss does and what it cannot guarantee.
Know What You’re Trading
Forex and CFDs involve taking positions based on price movements. With a CFD, you don’t own the underlying asset itself, so it’s important to understand how the instrument works before you trade it.
Before opening a position, check what you’re trading, whether you’re buying or selling, how leverage applies and what costs may affect the position. If you don’t understand how a particular instrument or trade works, take the time to understand it before putting money behind it.
Know When to Step Away
A losing trade can make you want to open another position immediately to recover the money. A series of winning trades can create a similar problem from the other direction, encouraging you to take larger positions because you feel more confident.
If you’re making decisions because you’re frustrated, rushing or trying to recover a previous loss, stepping away from the platform can help you reassess before making another trade.
Watch for Trading Scams
Not every trading risk comes from the market. Be cautious of anyone promising guaranteed profits, claiming they can eliminate your losses, pressuring you to deposit money quickly or asking for your trading credentials.
The U.S. Commodity Futures Trading Commission’s guidance on forex trading highlights several common warning signs associated with forex fraud. Take time to verify who you’re dealing with before sending money or sharing account information.
Trading on Farlo
Farlo Trade gives users access to forex, indices, commodities and crypto through MetaTrader 5. If you’re new to the platform, our guide to connecting Farlo to MetaTrader 5 explains how to connect your trading account and where to find the Login, Server and Password needed to sign in.
You can also learn more about how Farlo works before getting started. If you haven’t created an account yet, our Farlo registration guide walks you through the process.
Frequently Asked Questions
There is no risk-free way to trade forex or CFDs. Markets can move against you, and leverage can increase your exposure to those movements. Understanding the products you trade and managing your exposure can help you make more informed decisions, but it cannot remove market risk.
If you’re new to trading, a demo account is a useful way to become familiar with the platform and practise placing trades with virtual funds before using real money. It can help you understand how positions open, move and close without putting your own funds at risk.
How does leverage affect forex trading?
Leverage increases your exposure to a market relative to the funds required to open a position. Because of this, it can increase the effect of market movements on both potential gains and losses.
A CFD, or contract for difference, allows you to take a position based on the price movement of an underlying asset without owning the underlying asset itself.
No. A stop-loss can close a position at a specified level, but it does not guarantee execution at that exact price. Market conditions can affect the price at which a position is closed.
Be cautious of guaranteed returns, pressure to deposit quickly, unsolicited investment offers and anyone asking for your trading credentials. Verify who you’re dealing with before sending money or sharing account information.