The currency or forex market is the most unique market in the world, because it trades 24 hours except weekends and is a hundred percent electronic. It is open to both large and small traders without any formal education requirement. It trades over $4 trillion a day, dwarfing the volume of any stock exchange in the world. Brokers do not charge commissions. With the ubiquitous internet access and the proliferation of forex trading platforms, online forex trading has become the darling of the traders. Even if you have never traded foreign exchange before, or you don’t know where to start, there are plenty of free resources and tools to guide you. Unlike in stocks, your online brokers can provide you a free demo account, charting tools, market analyses, and plenty of other market education for you to become forex-savvy before you trade with real money. Let’s walk down the lane of currency trading together and uncover some of the best strategies.
Your forex broker is your most important partner in forex trading. The right broker should be registered, regulated by the local financial authority, and incorporated in a developed country. As money moves electronically, you have to find a broker who places your financial safety and security as its number one priority, safeguarding the client’s money in secured trust accounts. The company should be large enough to provide a 24-hour customer support so that you won’t be lost in the sea of forex trading. Apart from focusing on the quality of the broker, you will need to find out about the tools and research available on the trading platform, the account types offered, and pricing competitiveness, as well as the available range of leverage.
- Tools and resources: Since forex brokers offer different types of trading platforms, be sure to try the real-time charting tools, news feed, economic calendar, trade execution, and other educational tools before signing on. One unique feature of forex trading is the availability of free virtual accounts with live quotes for new traders. Well-regarded forex brokers such as Thinkforex not only offer a free demo account but also provide training webinars, trading guides, technical charting, and market analyses at www.thinkforex.com.
- Account types: Check if your broker offers a mini account, a standard account and a premium account. A mini account can be open for as low as $250.
- Leverage options: Forex brokers offer different leverage ratios depending on the size of your account and the type of currencies you trade. Leverage can be as high as 200:1, which means you can get an exposure of $200 with a capital of $1. Always choose the right amount of leverage based on your capital loss tolerance.
- Tight spreads: Although you do not pay any commissions to a forex broker, you incur a spread between buying and selling currencies. Therefore, it is important to compare the differences in spreads in major currency pairs across brokers.
Do your Research and Pick your Analyses
Before you trade, the best thing to do is to conduct your own research in order to understand the basics of the forex market. If fundamental analysis sounds more appealing to you, be sure to follow the economic, social and political news and data that affect the currencies you are trading. The Financial Times and The Economist are excellent news sources for global and macroeconomic events. By doing research, you can understand the long-term trends affecting these currencies, and benefit from market catalysts in the short term. If technical analysis, the study of past price movements to predict future changes, is your cup of tea, then read up on books on technical analysis, get familiar with your online forex broker’s technical analysis packages, and test out your trading strategies using the demo account. It is often useful to combine both fundamental and technical analyses to determine your entry and exit points.
FX Risk Management
Successful traders are extremely disciplined and engage in proper risk management. Apart from controlling your leverage, you can mitigate losses by employing a hard stop loss target or a mental stop. The stop loss level can be set in your trading platform when you initiate a trade. For short-term traders, a mental stop where no fixed stop level is placed in a computer can be more useful, although the traders need to be both disciplined in watching the position and flexible enough to exit the trade when circumstances change. When you open multiple positions, you should be aware of your true exposure in any one currency so that you are not taking excessive risks.
Before stepping into the vast and dynamic forex market, make sure you find the right partner – your online forex broker. Know that free resources are widely available and make full use of them before you trade with real money. Research, discipline and practice will be your best friends in your journey to successful forex trading.