The allure of Forex trading has seduced many since it became readily available to anyone with big dreams and a few thousand dollars to spare. Yet for most, those big dreams were squashed within one year.
If you are serious about trading in the Foreign Exchange (Forex) Market you need to first learn the basics. Forex trading may appear cut and dry from the outside, but if you don’t at least have the basic knowledge of what is going on and the skills to know what to do with that knowledge, you can kiss that few thousand dollars goodbye.
Forex Trading is Not a Get Rich Quick Scheme
If you are thinking about trading in Forex because you heard from some guy about another guy who made a clean million in a year by trading currency, then this is not for you. Like everything in life, it takes money to make money, and when you are trading on its value, it takes time. Only consider trading Forex if you have the time to build your wealth slowly and steadily.
The Trading Forex Basics
As you know, each nation has their own currency that is used to buy goods and services. Forex is a method of trading those different currencies against one another. For example, in the United States, the dollar (USD) is used. In most of Europe it is the Euro (EUR). If you have dollars and want to buy something in Europe, you are going to have to first convert those dollars to the right currency. The market dictates how many Euros you will get in exchange for your dollars, and it is those fluid rates which form the basis of Forex trading.
Forex Quick Facts:
- There is no centralized market like with stock trading. All trade transactions take place electronically through computers.
- This is a worldwide market, making it open 24 hours a day for 5 and half days a week.
- When the currency trade day ends in New York, a new one is beginning in Tokyo.
- Forex, FX, currency market and foreign-exchange market all mean the same thing.
- Depending on the type of account and your broker, you could start trading in the Forex market with just a few hundred dollars.
Getting Started With Forex Trading
Despite its being online and the relatively small minimum investment required, you will need a Forex broker or market maker in order to trade. These middle men will set up an account for you and facilitate all of your trading activities through your own market dashboard.
Your first step, after deciding on how much you are willing to invest initially, is going to be choosing a broker. Look for these traits when making that decision:
- Regulation Compliance – Due to the worldwide appeal, the internet and lax regulations in many nations, just about anyone could be masquerading as a Forex broker online. You will first want to ensure that they are based out of the United States, and that they are a member of the National Futures Association and registered with the U.S. Commodity Futures Trading Commission. This will ensure that no one in a foreign country is going to wipe out your account and run.
- The Initial Deposit Requirement – Not all brokers are going to have mini or micro accounts that allow you to get your Forex feet wet first before making larger investments. Check if they are offering accounts that fit what you are willing to invest.
- Their Platform – This is critical when choosing a Forex broker. The platform used to make trades will differ from broker to broker, showing different types of information and in the way a trade is made. Make sure that you understand how the platform works before committing your money.
- Leverage – The key to making money in the Forex market is by using leverage. This is a loan that is extended by the broker to help you make a larger investment without the funds. This should only be used with great caution, but you should look into how and for how much the broker extends in leverage.
Taking Forex for a Test Drive
In order to entice new investors, brokers will allow you the chance to work with their individual platforms, using “relative” money. This is actually great not only to test out the platform, but to see if you like the action of Forex trading before you even begin. You are given a practice account and the liberty to make trades, seeing the actual results had the trade been real. There is no better way to learn without risking your money than by taking advantage of these free test drives.
Now Find a Forex Mentor
Learning the ins and outs of Forex trading is easier when you have experience by your side. There are many successful traders out there who are able and willing to help a new trader learn the ropes. They will help you in setting realistic goals for yourself, learning all the new terminology, and how to build strategies in trading that will earn you dividends. Don’t think that you can just dive into this without some help, and don’t take the help offered for granted. Learning from others mistakes is going to be critical, not only in building on your investment, but in keeping it.
Expect it to take some time before you see any substantial profits from your initial trades. This actually means you are doing it right. While the Forex market moves fast, it is moving in tenths of a dollar amount. Probably the best advice you are going to get as a beginner in Forex trading is to take your time to learn, and be patient in watching your account grow. With each trade you are gaining more knowledge and hopefully a little more money, and both will be vital when you are ready to start trading bigger.
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