The foreign exchange market does not only allow trading but also investing. Yes, many people only think of forex as a trading industry, buying or selling the asset and making profits in the short term and coming out of the market.
Investors globally have invested in the FX market and turned it into a part-time source of income. Forex is more than just an investment, as it allows you to diversify your investment with the large availability of instruments. Thus, it requires a proper plan to manage your funds to avoid losses. If you can invest just $500 and compound it for five years at 5% per month, it would be $9339.
Do you desire to be one of the investors who want to invest by having a proper plan?
This article includes an overview of the forex investment plan and a few steps that help create them.
What is a forex investment plan?
It is a strategy for maintaining trading discipline. It aids in the consistency of your trading, managing your emotions, and even improving your trading method.
A trade investment plan is a road map for trading. One should place the trade when a well-researched plan is in place.
Forex investment plans are typically long-term position trades in which market participants intend to invest in a currency and hold it for several weeks or months. However, there are numerous methods for strategizing FX investment plans to maximize profit.
In general, investing in forex can also include:
- Buying books
- Taking courses
- The money in your trading account
- The amount you pay for copy trading or signal channel
But more or less, you will always need a working plan for your investment. Let’s look at what this investment plan must include.
How to build the perfect investment plan in five steps?
Making an investment plan includes more than just picking a few financial instruments to invest in. Here are five steps to build the perfect investment plan.
Step 1. Invest what you are willing to lose only
In creating an investment plan, the initial step is to assess your current financial situation and determine how much money you can invest. It is a known fact that the returns depend on the size of the investment. It is better to make it based on the pocket size.
As little as $500 is sufficient to start a successful forex investing career. Given enough time, $500 can grow into a fortune thanks to compounding interest if you will use it. Hence, investing money from savings is good by avoiding loans.
Step 2. Defining goals
Your investing plan will depend on the short and long-term goals you want to achieve. Deciding what you want to achieve will help you determine how much risk you can take and what type of investments you should make to help you achieve your goals in your lifetime.
Step 3. Determine how much risk you are willing to take
We must understand that investing is all about keeping the investment safe while still making profits. There is an extreme risk involved when investing in this volatile financial market. Calculate investment risk based on goal and how much time you have to accomplish it.
It is up to an individual to decide how much risk they are willing to take. It is not about how quickly you achieve your goals; it is about actually accomplishing them. It is vital to make more conservative investments to ensure that you have enough money but not lose it.
Step 4. Preparation of mind
Every trader’s mental condition is a valuable asset. When you are not emotionally and psychologically ready to trade, it is best to avoid it; else, you risk losing your money. Because trading is a business, and distractions can be costly, your trading area should be free of distractions.
Step 5. Setting exit rules
It is important to know your exit price or zones before you enter the trade. Every trade has two exits; the first one is your stop loss. It means when the trade goes against you, it hits stop loss value and closes trade with minimal loss.
The second exit is the profit target; once the trade reaches the target profit point, sell a portion of your trade and move the stop loss to breakeven.
Pros & cons of forex investment plan
Forex investment plan is more of a protocol that needs to be followed for a better investment record. Investment is desirable until you discover it also has some disadvantages. Let’s look into a few advantages and disadvantages of such a plan.
|Worth to use||Worth to getaway|
|Benefit from leverage|
The availability of leverage is perhaps the most appealing reason to trade FX, as it allows you to open a large position with a small amount of capital.
|The price determination process is complex|
Because of the composite price determination process, foreign currency prices are frequently thought to be complex.
|High liquidity and volume|
High liquidity and volume create opportunities in the market for traders to profit.
|High volatility in the market|
The high volatility of trading can be advantageous or disadvantageous. Changes in global policies and the economy can sometimes drastically alter forecasts, making it difficult for traders to judge the foreign exchange market and invest money.
|Transaction costs are low|
The FX market not only requires little capital to enter, but it also has low transaction costs once you’re in. Brokers typically profit from spreads, which are measured in pips and factored into the price of a currency pair.
|Risk with overconfidence |
When the level of overconfidence arises in a trader, the market participant tends to realize that they might not win all the trades.
The forex market is like a stormy ocean. Without adequate knowledge or skills, one cannot jump into it. Hence, we must back forex investment with a well-thought-out plan and course of action.
The bottom line is, successful traders consider trading as a business. There is no guarantee for profit, but having a plan in place will help to be consistent and survive in the trading challenge.