Until the internet, few people ever heard of Forex let alone trade it. Now just about anyone can get involved in Foreign Exchange by trading online. It is very important, though, to learn the process and have a system, as ignorance can be a costly affair.
Advertisements on the web make Forex trading look easy and compelling. They say you can trade with leverage and make lots of money from home. For example, you certainly don’t need a fortune as many Forex brokers will now allow you to open an online mini-account with as little as $250. Most offer 200 to 1 leverage (200:1), which means a $50 dollar margin deposit would allow a trader to buy or sell $10,000 worth of currencies. That’s in addition to the fact it is a 24-hour, trading arena from Sunday evening to late Friday afternoon. That’s nearly 120 hours of straight trading availability from your home computer.
Training
Most trading mentors, on the other hand, are not so quick to have you jump right in. They teach that success with Forex requires you to seriously learn and practice by paper trading online first, in some cases for at least 6 months. The reason is: Forex trading reads well as a technical market, and it takes time to come to grips with the basic principles underlying its nuances.
Fact is you are not actually trading a single currency, but a spread between two currencies. That’s different than buying GM or Google stock. You are buying the USD and selling the Euro simultaneously, for example. The very nature of spread trading requires you, therefore, to learn the necessary skills in form of the ‘tools of the trade’ that include technical and fundamental analysis.
One great way that you can learn Forex currency trading is to take advantage of the many courses, articles and demo accounts that are available on the web. This is facilitated by the online brokerages, as they want to increase the overall knowledge of the investor.
There are many websites that provide online Forex trading courses and demo accounts. One of them is FXCM. Another resource is Forex Club, which allows you to take daily training via trading with a free demo account that make it possible for beginners to place their orders, enter stops and limits, and test some of the strategies without any risk of losing real money. In this hands-on manner, you better experience how to protect yourself from major financial disaster.
Another great way to learn Forex currency trading online is to join related forums on the web and start talking to others about it. There you can discuss broker ratings, signals, training, education, articles, books, links, charts, quotes, reviews and more.
There are also some excellent Forex books and ebooks on the market, so it’s wise to take advantage of these resources whenever you can. And take advantage of online study courses and in-depth, Forex video materials that can really complete your Forex education. From the comfort of your own home, and at your convenience and pace, it will extend your education from the basic lessons to advance training. The point is this: Without the right Forex trading education and system training, you will just be throwing your money away.
Platform
Be aware that not all platforms are alike. In fact, many Forex trading platforms, software solutions and courses are “pure hype;” and some Forex traders are getting ripped off. This is reminiscent, in my opinion, of stock trading during the old bucket-shop days of Jesse Livermore.
On the positive side, most Forex brokers are reputable. Just stay with the big names that have their own trading platform, whereby you can access charts with their data feed; or you can choose a popular, independent platform like MetaTrader or TradeStation, Some software companies have arrangements with brokers, where the trades are routed direct.
Brokers
Deciding on a broker requires a bit of research on your part. It is time well spent, though, as you will glean insight into the services that are available and fees charged.
Why do you need a broker? The Forex market involves large organizations, such as central governments, commercial companies and international commercial banks as well as smaller players such as brokerage houses and individual brokers. While the banks participate in this world-wide action, brokers are established to facilitate the buying and selling of currency by you and me. Simply, you cannot trade on your own, and all orders must go through a broker.
Some may ask how the brokers get paid. The fact that they tell you they do not work on a commission basis is misleading. Brokers earn money by setting the spread between two currencies. In spot Forex, brokers are compensated for their services through the bid-ask spread, meaning you don’t need to pay any additional fees.
What should you look for in a broker? In addition to the ease of the Forex trading platform, make sure they offer free demo accounts to practice trading, min-accounts for cub traders, along with access to real-time quotes, breaking financial news, charting services and daily analysis. Companies like Interactive Brokers and FXCM, for example, are service providers offering online currency trading to brokers and traders. They provide instant order execution, low spreads, flexible starting capital, fast deposits and withdrawal, local support, and most of all, solid funds security. That’s very important.
Currencies
Foreign Exchange, Forex or just FX are all terms used to describe the trading of the world’s many currencies. It is THE central element in supporting global trade. Some reports indicate that 5% of daily turnover comes from governments and companies that buy or sell products and services in foreign countries or must convert profits made in foreign currencies into their domestic currency. That alone makes Forex the largest market in the world, surpassing stocks, commodities and bonds.
The major currencies are as follows: the US dollar (USD), the British pound (GBP), the Euro (EUR) and the Japanese yen (JPY). Nevertheless, they are traded in pairs, where they move against each other as EUR/USD, USD/JPY and GBP/USD, for example. The first currency is noted as the base currency by which the difference between the two is known as the spread. The increase or decrease in that spread defines your profit or loss.
Quite a lot of the money made in online Forex trading is made by trading these pairs of currencies. The profit or loss you make is the relative change in difference between the two currencies.
Summary
Daily fluctuations between currencies, even small changes, can result in big profits for Forex investors. These also spell high-profit opportunities on a 24 hour a day basis. But don’t be fooled by the hype. Becoming a successful Forex trader basically comes down to four steps: 1) Attain the best education; 2) Master the Forex trading tools; 3) Find a reputable Forex broker that best fits your needs; and 4) Develop your own personal trading strategy.
Just remember that successful investing starts with the right education, and learning to trade Forex is no different.