Forex trading: Getting started

You may have heard great things about Forex trading and wondered whether it would be possible to find lucrative opportunities, that you could become involved with.

Forex trading is similar to stock trading in that you trade currency based on what you think the value is. The benefit of Forex trading is that you can buy and sell currency, just as easily, as the market is so large. Another global market used for trading is the Commodity market, which trades in primary resources such as gold, oil and natural gas.

What is Forex trading?

In simple terms, Forex trading involves trading currency. Forex is an acronym for “foreign exchange”. Forex or currency trading is a decentralised global market where all the world’s currencies trade takes place. It is the largest financial market in the world, with a daily turnover of around $5 trillion. Currencies are traded by financial institutions, retail businesses and corporations.

Who can become a Forex trader?

Anyone with a small amount of capital and a good deal of patience can become involved in Forex trading. However there is a considerable risk in trading, it is important to educate yourself first, in order to limit losses.

How much capital do I need?

You can start to Forex trade with as little as $300, however, it is advisable to have a bank of at least $1000 in order to act as a buffer in case any losses occur. This buffer will enable you to continue trading so that losses can be made up more quickly. $1,000 is considerably less than $25,000 you need to start trading on stocks. Traders shouldn’t risk more than 1 per cent of their account on a single trade transaction.

Practice first

Before you take the plunge and start trading with real money you should practice the process by setting up a forex trading demo account. The account will allow you to connect to the market and place trades in real time. The benefit being, that the money used is rather like monopoly money in that it’s not real.

By doing this you will be able to experience any losses and gains without any of the risks involved.Using a demo account will also allow you to practice all the methods used in forex trading. Although it sounds a long time it is advisable to practice using your demo account for 3 – 6 months. This will give you a clear track record of how markets flow.

Seek advice

Eventually, you will develop your own style and ideas for trading successfully. As a beginner, however, it’s a good idea to get advice from experts who have been trading for a while.

Seek advice from Forex books or maybe consider hiring the expertise from a forex trainer. The more preparation you put in at the start, the more successful and lucrative your trading will be.

Live trade

Eventually, you will feel confident enough to live trade, rather than trade on your demo account. This will feel daunting at first as you are risking your own money.

If you follow exactly what you have learned over the last six months from the demo process, books and advice from your forex trainer it should go relatively smoothly. The amount of money you make will depend on the currency you trade in, how much capital you have and what trading methods you use. Making money with forex trading should be seen as a long-term goal rather than short term. You will need to develop and hone your skills over time.

Avoid scams

One of the skills forex traders need to develop early on is the ability to recognise that not all operators in forex trading are honest. Signal sellers are one such example. Signal sellers offer a system which claims to identify when it’s best to buy or sell currencies.

The signal seller charges a fee for this service and they use very persuasive marketing strategies to get you to sign up. A good way of checking whether the seller is reputable or not is by using their services on your demo account first, before committing.

Forex management funds are mostly scam companies that offer the investor (you) to have their forex trades managed by skilled forex traders to increase profit. This means that your money is basically put into the hands of someone else, who can do exactly what they like with it. You could lose control of your money for no return.

In conclusion forex trading can bring great financial reward, however, it is not without high risk. By following the above tips you should be able to lower the chance of any major financial losses. The key to successful forex trading is education and practice.