Unlike most popular markets for investing and trading, such as stocks, commodities, and indexes, which go through long-term trends favoring capital-intensive position trading strategies, the Forex market is both liquid and volatile. Presenting short-term trading opportunities even during a well-defined trend. The first and most obvious ingredient you’ll need to become a successful Forex trader is understanding how to pick and manage trades. Be cautious with Forex trading, there are a lot of Forex scammers and scams, so be vigilant.
Closing a position in profit isn’t the be-all and end-all. There are always ways to improve, and it’s not just about getting better entry and exit prices. Something many traders overlook is that cost impacts profit & loss. Every trade you place with a broker incurs fees, and the way you trade can be eating up your much-deserved gains. Be careful of scams when investing in Forex.
In this article, we’ll explore some helpful tips to help you maximize gains and minimize costs, ultimately increasing your investing and forex trading profit.
Be aware of rollover fees on Forex transactions.
In most forex trading platforms, when entering a new trade, it will display a fee disclosure showing expected costs for opening and closing the position. Swap fees are often less transparent and hard to measure due to the uncertainty of how long you’ll hold the position or whether those fees will be applied or not.
Swap fees are often the most expensive part of trading forex. As of May 2021, the retail Swap rate for a long EUR/USD position is 0.52 pips with most leading brokers, meaning it would cost $5.20 each time you roll a 1-lot position over to the following day.
A final point to consider regarding rollover costs is that most brokers charge triple on Wednesday. This practice might seem confusing, but it’s a common industry practice stemming from the T+2 settlement methodology. Although your broker immediately settles closed positions in your account, they deal in an institutional environment behind the scenes.
Avoid placing too many trades.
The reason you shouldn’t place too many trades isn’t just because of the risk of overtrading but also because every trade incurs a cost to enter and exit. Many traders, especially scalpers, pay little attention to their trading costs and focus exclusively on the pips they gain. Realizing profit can reduce anxiety, but if you’re just going to get back into the trade later, you’ve doubled your costs. With a touch of fine-tuning, every trader can optimize their transaction costs.
Most forex brokers offer free platforms and data feeds
If you’re coming from the world of trading stocks, futures, or options, you might be expecting to buy or rent a forex trading platform and plug in a data feed. In the forex trading industry, the overwhelming majority of brokers offer white-labeled platforms already integrated with their data feeds for pricing and execution.
Larger brokers offer proprietary trading platforms, while smaller brokers offer turnkey platforms such as MetaTrader 4 and cTrader.
Consider how your broker charges commissions
Most brokers offer a choice of accounts. While most brokers offer accounts with either tight spreads and a commission per trade or no commissions but larger spreads, there’s a subtle difference between how brokers calculate trading commissions.
Some brokers charge per lot; others charge per million US dollars notional value. To illustrate this point, we’ll consider a few examples using a fee of $5 per lot (Method A) and $50 per million (Method B), since ten lots make a million units.
1 lot of GBP/USD
Method A = $5.00
Method B = $7.10
1 lot of USD/JPY
Method A = $5.00
Method B = $5.00
1 lot of NZD/USD
Method A = $5.00
Method B = $3.60
As you can see from the examples above, the calculation influences the commission depending on the notional value of the base currency. If the base currency is weaker than the US dollar, you will pay less using Method B, whereas if the base currency is stronger, you will pay less using Method A.
Earn forex rebates
Many brokers offer incentives to attract new clients, and rebates can be a helpful tool to reduce trading costs. Although we don’t suggest choosing a broker based on the benefits they offer, after all, rebates are ultimately factored into the price you already pay. However, if you’ve chosen a broker based on other merits, why not inquire about their rebates.
The practice of offering incentives is being phased out due to regulatory reforms; however, most brokers continue offering rebates to professional clients. The drawback of these rebate programs is they dynamically increase rebate value based on trading volume. If you choose to enable rebates on your account, don’t let this encourage overtrading.
Other ways to improve Forex profitability
Besides taking advantage of benefits and minimizing trading costs, another factor to consider is transferring payments to brokers. Although the spreads and commissions you experience in your trading account are minimal, the cost of transferring money to and from your trading account can add up, especially the foreign exchange costs.
I hope these tips help you with your forex profitability. This post was written by Winston on Fiverr, I use Fiverr to enhance the blog with posts from real professionals who can add their expertise to the blog. This freelancer is Winston_Thesis. Subscribe for more investing posts. Have a lovely day.
Disclaimer
The content on this website is provided for educational and informational purposes only. It is not intended as financial advice or a recommendation to invest in Forex or any other financial market. We do not provide investment, legal, or financial advice, and we are not financial advisors.
Forex Trading is High-Risk: Forex trading carries a high level of risk and may not be suitable for all individuals. It is important to understand that trading in the foreign exchange market involves substantial risk, and you may lose more than your initial investment. Before engaging in Forex trading, you should carefully consider your financial situation and risk tolerance.
Be Cautious of Scams: The Forex market is known for its potential for scams and fraudulent activities. Be vigilant and exercise caution when exploring opportunities in the Forex market. Always verify the credibility and legitimacy of any service providers, brokers, or trading platforms you may encounter. Do your research and look up any websites you will use for trading with the words scam in your search engine bar. This will help you be able to find examples of scams and make your own opinion.
We are committed to providing educational content to help readers understand the complexities of the Forex market, its risks, and how to protect ourselves from potential scams. However, we are not responsible for any actions taken based on the information provided on this website. It is essential to conduct your research and consult with qualified financial professionals before making any investment decisions.
By using this website, you acknowledge and agree that you are solely responsible for your trading decisions, and you do so at your own risk.
