The forex market is the largest investment market the world, and there are a number of different ways to trade it—spot transactions, currency swaps, options, foreign exchange swaps, and more. But, as with any kind of trading, there are risks to be wary of when you dip your toes into the game. To help you understand these risks, here are three things to consider before you start forex trading.

Target trading is one of the most popular forex trading strategies. If you can identify how the market is trending and anticipate how price will move, you can use that information to preemptively establish profit-taking points, or targets, at which to exit or partially exit your position. A grid trading strategy is a common form of target trading whereby traders preemptively create conditional stop entry orders and set a profit target for each pending order.

One of the most common questions I am asked is how you can develop a trading strategy to use in the foreign exchange markets.  Like trading any product, there is a time-tested process to work through to develop a trading strategy or plan that you will be able to implement with confidence.  As simple as it sounds, you need to work out what will and won’t work in the market as you look to develop some trading rules. 

In Forex, all trades have a timeline of two days. If, at the end of that period, a trader wishes to remain in a trade rather than settle up for the amount they’ve borrowed, they must pay interest to retain those funds and hold their position for another day. The “swap rate” represents the interest rate differential between the two currencies being traded. Because interest rates are influenced by market conditions, swap rates are constantly in flux.

If you know the current swap rate for a currency pair, you can calculate the swap or “rollover” fee you’ll owe or accrue if you decide to hold your position overnight. This knowledge will help you understand the costs of holding your position open and allow you to weigh those costs alongside potential risks and rewards to mitigate risk.

To accurately calculate the swap fee for a currency pair, you need to know the current swap rate for the currency pair in question, your net pip value on that trade, and the number of days you’d like to hold your position. Although it may sound like a lot to navigate, the formula for calculating swap fees is fairly straightforward:

Several significant issues have lingered through November including Brexit, in which the Bank of England (BOE) have recently warned the nation of some significant consequences should the exit be disorderly.  Britain risks suffering an even bigger hit to its economy than during the global financial crisis 10 years ago in a worse-case scenario, according to the BOE.  The U.S. Federal Reserve have also recently changed their tune as Fed Chairman Jerome Powell said he considers the central bank's benchmark interest rate to be near a neutral level, an important distinction from remarks he made less than two months ago.  The markets have generally welcomed this change.

The cryptocurrency market has captured the hearts and minds of millions, as it is now being seen as a viable avenue of investment. The number of individuals trading cryptocurrency is growing month to month, along with the market caps of the biggest coins around, such as Bitcoin, Ethereum, and Litecoin. We’re even seeing the likes of Dogecoin make an impact, as investors look to get their hands on anything related to digital currency.

As the market continues to heat up, it pays to keep an eye on what’s going on around the world when it comes to crypto.

Pattern recognition software is a broad name for programs that use mathematical algorithms and artificial intelligence to identify specific graphic patterns in price movement. This type of software is used by traders in tandem with charting software to inform their trading strategy, timing, and position. Using AI, pattern recognition software scans price action charts for specific breakout patterns that are commonly understood as indicators of market change, thereby alerting traders to possible profit opportunities and helping them manage risk.

Different analytical tools in your trading tool kit can help you locate buy and sell signals, identify and anticipate market trends, and help inform what position you should take. But to create a consistent and effective forex strategy, you need to understand how your chosen indicators can be used as checks and balances in a more comprehensive trading strategy.

The most successful traders are able to manage risks and rewards and see the bigger picture of their trading decisions by populating their tool kit with four types of tools: trend following, trend confirming, overbought and oversold, and profit taking. We’ve outlined why these four roles are essential and how they can complement one another to make you a savvier trader.

Stop-loss orders are the fail-safes of the trading world and the most common means by which traders balance risk and reward without staying glued to their computer screens 24/7. Like the name suggests, stop-loss orders are meant to limit potential losses by automatically exiting traders from their position in the event that price moves against them. If you were to buy a currency expecting an increase in price (called “taking a long position”), then you would place a stop-loss order to sell and exit your position directly below the current market value. This stop-loss order would only be triggered if the price drops below your stipulated threshold—in short, it will exit you from your position and limit your losses if the price decreases. If you entered into a short position expecting a decrease in price, you would place your stop in the opposite fashion, above the current market value.