How To Get Started In FOREX Trading
The foreign exchange market (FOREX) offers
many advantages to investors. But you need to know where to begin.
This short guide will give you the FOREX
basics, so you can quickly start participating in this fast growing market.
In the past, foreign exchange trading was
limited to large players such as national banks and multi-national corporations.
In the 1980's the rules were changed to allow smaller investors to participate
using margin accounts. Margin accounts are the reason why FOREX trading
has become so popular. With a 100:1 margin account, you can control $100,000
with a $1,000 investment.
A Learning Curve
FOREX is not simple, though, so you ll
need some knowledge to make wise investment decisions. Although it is relatively
easy to start trading on the FOREX, there are risks involved.
Your first move as a beginner should be
to find out as much as possible about the market before risking a dime.
Find A Broker
FOREX traders usually require a broker
to handle transactions. Most brokers are reputable and are associated with
large financial institutions such as banks. A reputable broker will be
registered as a Futures Commission Merchant (FCM) with the Commodity Futures
Trading Commission (CFTC) as protection against fraud and abusive trade
practices.
Open an Account
Opening a FOREX account is as simple as
filling out a form and providing the necessary identification. The form
includes a margin agreement which states that the broker may interfere
with any trade deemed to be too risky. This is to protect the interests
of the broker, since most trades are done using the broker's money.
Once your account has been established,
you can fund it and begin trading.
Many brokers offer a variety of accounts
to suit the needs of individual investors. Mini accounts allow you to get
involved in FOREX trading for as little as $250. Standard accounts may
have a minimum deposit of $1000 to $2500, depending on the broker. The
amount of leverage (how much borrowed money you can use) varies with account
type. High leverage accounts give you more money to trade for a given investment.
Trades are commission-free, meaning that
you can make many trades in one day without worrying about incurring high
brokerage fees. Brokers make their money on the 'spread': the difference
between bid and ask prices.
Paper Trading
Beginning traders are strongly advised
get accustomed to FOREX by doing "paper trades" for a period of time. Paper
trades are practice transactions that don't involve real capital. They
allow you to see how the system works while learning how to use the various
software tools provided by most FOREX brokers.
Most online brokers have demo accounts
that allow you to make free paper trades for up to 30 days. Every new FOREX
investor should use these demo accounts at least until they are consistently
showing profits.
FOREX Software
Each broker has its own set of software
tools for making transactions, but there are a few tools that are common
to all FOREX brokers. Real-time quotes, news feeds, technical analyses
and charts, and profit-and-loss analyses are some of the features you can
expect to see on most online brokers' web sites.
Almost every broker operates on the Internet.
To access a broker's online services you'll need a reasonably modern computer,
a fast Internet connection, and an up-to-date operating system. Once your
account is set up, you can access it from any computer just by entering
your account name and password. If for some reason you are unable get to
a computer, most brokers will allow you to make trades over the phone.
There are lots of ways to make money. FOREX
trading is just one more potential stream of income -- if you are prepared
to learn and practice.
Author-Bio: Ron King
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