As with any new venture, and indeed, more than is true with most ventures, a reasoned approach to forex trading is desired. Although there may be many ways to get started in forex trading, the following steps should be considered:
Step 1: Education
As with any new venture, forex trading requires a certain amount of education before trying. Part of the education process involves learning about the world of forex trading, but an important part includes education about the kind of person you are.
Trading, perhaps particularly forex trading requires character traits that are not present in everyone. forex trading requires a particular mix of characteristics, including intelligence, courage and discipline, and insight into market or mass psychology, perhaps a particular intuitive insight into market forces, and drive, determination and patience. If you do not have the particular mix of characteristics required to be a forex trader, this is not necessarily a personal shortcoming. Not everyone can be a trader. Some people are good at art, some at business, some at music, some at math, and some at trading forex. Even if trading is for you, becoming a successful trader will require patience, effort, and experience.
The first step is to learn about forex. This site is designed to provide the basics of forex trading. Also study currencies. This includes basic information about the currency and the country or region that uses it, as well as the fundamental factors that influence currencies. After that, learn about technical analysis and how most traders depend on it for most of their decisions.
Step 2: Decide Where To Trade
Once your education is well underway, the next step is to choose a broker. Trading in the forex market is done through a broker or dealer, who provides a trading platform and services that facilitate forex trading though the Internet.
There are many factors to consider when choosing a forex broker. Those factors include:
- Account type: Various accounts types can be offered by brokerages. While individual brokerages might use different terminology, in general account types might include: Full Size, for currency trade lot sizes of around $100,000; Mini around $10,000; and Micro accounts for lots of $1,000 and sometimes less.
- Minimum account balance: Deposit sizes are set by the margin requirements. Various brokers allow trading with various minimum account balances.
- Leverage: The ratio of margin requirement to value of currency pair traded. This can vary dramatically from brokerage to brokerage.
- Platform: The software platforms offered by brokerages differ in ways such as ease of use, reliability and features.
- Regulation: Not all brokers are regulated, so traders must be careful operating in countries without national regulatory bodies.
- Service: The customer service you receive from the brokerage can also affect your trading experience and your profits/losses.
For more information on opening an account, read the section Opening a Forex Account.
Step 3: Practice What You Have Learned
The forex market offers numerous opportunities to practice trading. Brokers provide demonstration accounts with all the real time dynamics of trading but with no expense or risk of loss. Use the demo account to test and increase your knowledge, and to develop and test your trading strategies. It makes sense that you should be able to consistently profit in a demo account before starting to trade with real money. In fact, you might often hear that the psychology of trading with real money makes it much harder to profit when trading with real money and real risk. Be patient during this period. Learn to trade “on paper” (using a demo account) before risking real money.
Step 4: Open a Real Forex Account
Once you’ve practiced enough and feel ready, it’s time to open a real account. Remember the risk of losing your money. To reduce the potential loss (or profit) you might start with a micro or mini sized account.
With your account open, go ahead and make a deposit to allow trading. Remember to start small and use only money that you can afford to lose. If money lost means less funds are available for the essentials of living, like food for yourself or your children, go back to the practice accounts and wait until you are wealthier before entering the forex market.
Even if you are honestly ready and able to enter the forex market, ease into it. Trade cautiously; follow the currency pair closely and don’t put all of your money into the market at one time. Think of the initial time and money invested to be an investment in education. You might get lucky initially, but it is quite likely that the initial margin account will be lost. Take your time; the forex market is not a get-rich-quick scheme, it is only learned through time and experience.
Gradually Expand Your Horizons
With experience comes peace of mind. Once you have that peace of mind that you are capable in the forex market, and as the trading experience and successes mount, slowly increase the amount of trading. However, always be disciplined and cautious. Even experienced traders lose money. Ensure your trading style works for you and then stick to it. (Source: forex.tradingcharts.com)