Once you consider to start Forex trading, one of the first things you need to do is choose a broker, choosing a reliable broker is the single most critical factor to Forex success.
There are dozens of online brokers out there but most does not accept USA traders. Based on our experien the best broker for US residents is...
Our Preferred Forex Broker
We currently trade at eToro platform. After testing several Forex platforms we find this one to be the most suitable for us. What made the difference is a unique feature that allow us to watch and copy the strategies and trades of the best performing traders on the platform. You can actually see each move the "Guru" traders make. This method works nicely for us. Since we started trading at this broker we noticed an increase of our successful trades and profits when compared to our former brokers. You may want to check them out.
Please note that all trading involves risk. Only risk capital you're prepared to lose. Past performance does not guarantee future results. This post is for educational purposes and should not be considered as investment advice.
Forex is a straightforward website to trade currencies on with good trading platforms, research and educational tools. It has several different account levels that make it easy for anyone to open an account. Forex Inc is an excellent broker suitable for beginners and pros alike.
Now I would strongly encourage you to go and visit Forex Inc's site right now even if you are not yet decided whether you want to go into Forex trading. Why? because thei site provides tons of free education materials, videos and best of all a demo account that allows you to practice Forex trading for free without the need to deposit any money. Simply register for a free demo account and start "trading" - by actually practicing and experiencing it firsthand you'll be able to decide whether Forex trading is for you.
What is Forex
Foreign exchange, popularly known as 'Forex' or 'FX', is the trade of a single currency for another at an decided trade price on the over-the-counter (OTC) marketplace. Forex is definitely the world's most traded market, having an average turnover more than US$4 trillion each day.
Compare this to the New York Stock Exchange, that has a daily turnover of about US$50 billion and it is very obvious how the forex market is definitely the largest financial market on the globe.
In essence, forex currency trading is the act of simultaneously purchasing one foreign currency whilst selling another, mainly for the purpose of speculation. Foreign currency values increase (appreciate) and drop (depreciate) towards one another as a result of variety of factors such as economics and geopolitics. The normal objective of fx traders is to make money from these types of changes in the value of one foreign currency against another by actively speculating on which way foreign exchange rates are likely to turn in the future.
In contrast to the majority of financial markets, the OTC (over-the-counter) currency markets does not have any physical place or main exchange and trades 24-hours every day via a worldwide system of companies, financial institutions and individuals. Because of this currency rates are continuously rising and falling in value towards one another, providing numerous trading choices.
One of the important elements regarding forex's popularity is the fact that currency trading markets usually are available 24-hours a day from Sunday evening right through to Friday night. Buying and selling follows the clock, beginning on Monday morning in Wellington, New Zealand, moving on to Asian trade spearheaded from Tokyo and Singapore, ahead of going to London and concluding on Friday evening in New York.
The fact that prices are available to deal 24-hours daily makes certain that price gapping (whenever a price leaps from one level to another with no trading between) is less and makes sure that traders could take a position each time they desire, irrespective of time, even though in reality there are particular 'lull' occasions when volumes tend to be below their daily average which could widen market spreads.
Forex is a leveraged (or margined) item, which means that you are simply required to put in a small percentage of the full value of your position to set a foreign exchange trade.
The Basic Forex Trading Strategy
The basic Forex strategy that is used by many traders of all experience levels, is Trend Following. This strategy is widely followed because of its simplicity to identify and trade and many times, strong trends can bail you out of an imperfect set of buy and sell rules.
A popular trading express is "the trend is your friend." This expression has stood the test of time because many traders find it to be a critical building block of a trading plan. Before we delve into the basics of Trend Following, it is important to first explain why trend trading is a popular strategy used by many new and experienced traders.
Do you have the perfect Forex trading strategy? I have not found it. To me, a perfect strategy is the one that wins all of the time and has minimal trade drawdown. I hate to burst your bubble but a 100% win ratio strategy does not exist.
Therefore, learning how to trade in an imperfect world is very important. Trend following is a simple way to cover up some strategy imperfections by identifying the strongest trends in the market.
For example, if the market is moving up in a strong trend, it isn't as important what the strategy is used to time entries, you simply need to be buying. When you trade in the direction of the trend, the rest of your trading approach can fall right into place. This doesn't mean that all your trades will be winners. It does mean that you don't have to be exact in your entries and exits once you find a strong trend to trade.
Now how do you know when a trend starts and when it is going to end? this is the $64,000 question. Since this is a beginners guide I will not elaborate on the various techniques that traders use to identify trends as this is beyond the scope of this book. I will however touch on several techniques in later chapters but note that these will be just in an introduction level without going too much deeper.
Any trader either a newbie or a pro should develop his own style of trading. There are several trading styles that you can adopt. You will choose your style based on your personality and financial capacities.
Many traders make the mistake of adopting a trading style that is unnatural for them. A trader may adopt one of the following two main trading styles: Day Trading and Intraweek trading. Let's discuss each of them;
Day trading on Forex means that one or few trades are conducted within one trading day. As a rule, the time intervals between the opening or the closing of trades may take from several minutes up to several hours.
Despite some difficulties of day-trading, this type of trading is very popular among the newcomers as well as among experienced traders. Day trading allows for the opportunity to make a profit in a short time with a small amount of funds.
In order to achieve favorable results in an intraday trading it is essential that you make the right forecast as to the price movement, as there are many external factors that cause high volatility in the currency market. So to make your day trading beneficial you have to track the market situation, collate facts and make conclusions about the price behavior of currencies, it is also important to be able to react fast so that you will find entry and exit points quickly at the opening or the closing of trades. Combining knowledge of technical analysis (to be discussed in a later chapter) with patience and observance a trader has good chances to earn well with a relatively low risk.
There are several strategies of day trading. The most widespread among them is Scalping - a strategy that is offering a fast opening or closing of several day positions. The trader closes trades while making just a few profit pips on each trade while the earnings come from the accumulation of a large number of successfully completed short term trades.
Another popular day trading strategy is news trading. Traders, who choose news trading, monitor the market events permanently, analyze the currencies behavior in different cases. Usually news trading requires an insight learning of market development and a proper trade experience accumulation.
Day trading can be a source of a nice income through the readiness to devote most of your free time to trading.
Now here are the advantages and disadvantages of day trading.
* doesn't require large sums of money;
* Trader may stop trading at any time;
* Minimal risk.
* High emotional pressure;
* Lack of time during a trading session.
This style is suitable for traders with endurance and quick reactions.
Intraweek trade has no such furious market movements as in intraday trade. It may seem that the market is motionless. But it is just at the first sight. Intraweek trading has the following characteristics:
* A trade can remain opened for ten days;
* All trades are counted on taking the most part of profit on market movement;
* As a rule, not more than 2 positions are opened during a week;
* Requirements for invested funds are usually higher than for intraday trading;
* The work time is multi-hour charts.
Intraweek pros and cons:
* Not too much pressure;
* High profitability;
* There is free time during a trading session.
* larger volume of funds is required;
* Trader may be outside the market during a trend correction;
* Impossibility to stop trading at any moment;
* Necessity to hold opened position for 24 hours.
Forex Trading Risk Management
Your first concern when trading Forex should be not to risk too much money on any given trade. Unfortunately, many traders start trading Forex without thinking about the risk that they are taking - only about the potential rewards.
If you want to succeed in Forex you must take into consideration the maximum percentage of the total trading money that you should risk in any one trade. Actually, your ability to limit your losses is equally as critical (or even more critical) as your success in managing winning trades.
The goal of practicing a good Forex money management is to minimize risk and increase payouts. For starters here are 3 quick tips:
First, Trading Forex is fun and exciting and money can be made; but you must also keep in mind that like with any other trading there is the risk of losing. Hence, Forex trading rule number one: do not trade with money you can't afford to lose.
Second, never borrow money while trading, trade only with your own money (this does not apply to leverage that is provided by your broker).
And third, set and stick to a budget. Write it on your forehead if you have to, but no matter what, when you hit that number, quit trading for the day.
Good money management calls for adopting a conservative investment strategy that means that you should never risk your entire capital.
When you enter a trade (no matter how great it may be), always ensure to only invest conservatively. Forex trading like any other investing is not a sure thing, there is always a risk factor involved. A conservative investment strategy helps you to conserve your money when things go wrong.
Forex trading offers a lot of choices to the trader. A good money management strategy requires diversification. The volatility that accompanies trading currencies is much distinct from say trading commodities as well as stocks. Obviously, the payouts may vary depending on the currency pair which is selected. As the saying goes, never put all your eggs in the same basket.
Losses in a trade should be accepted on a positive note. The effects of a trade that goes against you are able to impact the future or successive trade decisions. Expecting losses whilst investing can assist traders in identifying the areas which may happen to be unnoticed. Losses needs to be seen as a stepping stone instead of having it affect you.
Start off slow and scale up - this has a significant role particularly for beginner traders. Certainly do not fall for the emotions and commit your entire amounts right away on one trade. Investing in small amounts continually helps you to take a self-disciplined approach. The majority of Forex brokers allow for a small minimum trade sum. Use this advantage and be sure to trade with patience.
Do not expect to make gains with Forex trading as soon as you made your first deposit. No matter if you commit $200 or $3000 the exact same key facts apply. Trade in small amounts until you have the sense of the assets that you're trading. This can gradually build your self-confidence levels and helps to automatically be aware of the indicators and be able to prepare your investing strategy and ultimately help reduce the losses. One of the important things that specifies successful traders has to do with using a good money management strategy.
There is a fine line between gambling and trading. To 'gamble' is to take a high risk with limited chance of achieving your expected pay out. To 'trade' is to take a calculated risk which will nevertheless provide you with a good return as well as keep you in the game for the long run.
Not only will pursuing this kind of strategy truly enable you to improve your outcomes, it will as well help your mental well being. When starting any type of trading you shouldn't be in a position in which you are sweating on a contract winning.
Aiming and sticking with a strategy which offers successful money management does not just make sure you are not kept up at nighttime; it will as well make sure that a loss will not signal the end of your investing career.
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