FX trading is the process of trying to make a profit, either by buying or selling, contracts based on the future difference in exchange rates between two currencies. It is not a get rich quick scheme. If anyone tries to convince you otherwise, there is something you want to do quick: Run, the other way.
Trading Forex can be exciting and lucrative, as long as a few basic concepts and rules are consistently observed.
What you need in order to trade:
1. Broker.
2. Computer and trading software.
3. Money to fund the trading account.
A good broker is probably the most essential element for a beginning trader. It is important to be able to communicate effectively and quickly. You want someone that answers the phone when you call or replies to emails in a very timely fashion. Some brokers offer the ability to chat online. Forex prices can fluctuate rapidly, so look for a broker that instantly treats your contact as the most important thing happening. Always remember the broker is going to be getting a small piece of the trade, whether that trade wins or loses, so the broker works for you, not the other way around.
There are almost as many brokers as there are lawyers. Spend at least twice as much time deciding on a broker as you do deciding where to get your hair cut. Talk with at least ten, trust your instincts, and go with the one that makes you feel the most comfortable. After that, continue to talk to brokers as you gain experience and discover what’s important to you.
Any decent computer with a high speed internet connection will work. There are hundreds of trading platforms, or software, to be evaluated. All reputable trading software companies will offer free trials ranging from two weeks, to as long as ninety days. A lot of trading software is offered by the brokers themselves. Many times they let you use the software for free for trading through them. Find software that is easy on the eyes, and easy to use. Always get a trial that supplies live data. It’s great to practice simulated trading with live data prior to risking actual money in the market.
The amount of money needed to fund a trading account will vary among brokers. Whatever that requirement is, be sure that you feel completely comfortable with the prospect of losing that money. Not that you will, necessarily, but the feeling that you are trading with money that’s disposable will go a long way toward eliminating the psychological pressure that any experienced trader will tell you is a recipe for disaster. When you have a trade on, the moment you start to see the market going against you, and thoughts like, “I’m losing money, I’m not going to be able to make my credit card payment,” start going through your mind is a terrible time to realize that your account size is inadequate. A good rule of thumb is to never risk more than 2% or your trading account on any one trade. If simulated trading shows you that a particular market moves $200 over a given period of time, just multiply this amount by fifty, and you know that an account size of $10,000 is needed to trade this market following this 2% rule.
Other rules to follow:
1. Before starting out fx trading, decide how much you’re willing to risk, and place orders to limit losses to this amount at the same time the orders to enter the trade are placed. Refer to the 2% guideline above. This will alleviate most or all of the fear that’s encountered over having money at risk over an uncertain outcome.
2. When in a losing trade, and you feel the temptation to “give it just a little more room,” see rule number one.
3. No one ever went broke taking profits. If you make a winning trade, take some or all of that money out of the game, and put it in your pocket. The majority of the time you have a winner after exiting a trade, the market is going to continue to go in your favor, and regret over getting out too soon may compel you to get greedy, and chase after the profits you would have made if you had not exited.
