Before you start trading in the Forex market, you need to know what Forex is all about. Forex is short for Foreign Exchange. It carries multiple names such as FX, 4x, and Spot FX. We are focusing on the retail Forex market which is for all individual traders. Currency trading is by far the largest market to trade in on the planet.
The commodity that is traded is actual currency. For example, if you would like to sell Euros and by US dollars, you would do this trading the EURUSD currency pair. Most Forex brokers offer you many different pairs to trade. When starting out you may want to stick to the big pairs connected to the US Dollar. These include eurusd, usdchf, gbpusd, and the usdjpy. These pairs tend to have the most fluid movements and the best liquidity. Once you are ready, you can then venture out into other pairs.
If you need a complete beginners guide to the Forex market, you can find plenty of information by typing a search in Google. This guide is setup to give what we think are the Top 20 items to think about before trading with your own money.
What kind of risks am I up against?
The risk involved with trading Forex or any other commodity is very large. Brokers, services and every one will tell you, that the risks are extreme and that you should only use money you can afford to lose. This makes perfect sense for the industry to cover their backs, because they know most people lose money trading Forex. To reverse this, you need to figure out a way to make money versus losing. If you can do this, then the warning signs you read every day can be pushed a side for a later date. Always remember that Forex trading is very risky and should not be taken lightly.
Will my emotions be a factor?
Besides money management, this may be the single most important factor. When day trading, or any other form of money investing, you will run into what is called the emotions of trading. If you care about your investment making money or losing money then you are emotionally involved. If you think you can trade any market with out emotions then wait until you take that first sizable trade and lose. Over the years we have found, the less emotion you use the better you will be, win or lose. This is why we have been focusing on using a robot trading style and staying out of the market when we can.
How important is money management compared to everything else?
This is right up there with emotions as one of the biggest pieces of the Forex trading puzzle. Without a money management system in place, you will not have complete control of the money in your account. If you expect to turn $200 into $10,000 in one week, then you should just look the other way and find something else to do with your money. Too many false expectations will lead to an account with $0. You need to make sure you understand how much to risk on each trade and how it will affect your whole account. Ten trades may make you money, but one trade could ruin you in no time. Find your threshold and only increase it if you are profitable.
Will I make money or lose money trading?
This question is hard to answer. The odds are against the average retail trader and you will most likely lose money. Some people only lose a little bit but a lot of people get so emotionally involved that they end up blowing their accounts completely. This is something you need to avoid at all costs. This is where trading small mini accounts or demo accounts really help contain your loses early on. Forex rebates will also lower your transaction costs, which can hurt an account as well. Don’t get us wrong, there are many people who are very successful and we will do everything we can to help you be profitable.
How much time do I have to put in to Forex trading, a day/week/month/year?
This of course all depends on a few things. If you want to really understand the market and every aspect about it, then it could consume a lot of time, especially if you have a full time job. You could be putting in a few hours a day and a lot more if you plan to day trade. Even if you are looking for a little extra income, you could still be putting several hours in a week. At the beginning, during the initial learning phase will cost you many hours just to get down the basics. If you start auto trading then your time will decrease substantially. Just make sure you have enough time to put in or you will be wasting the time you do have.
How important is a Stop Loss?
A stop loss ranks near the top when it comes to money management. Without a stop loss you could be a time bomb ready to go off. A stop loss will prevent you from disastrous mistakes. Now, there are many forms of stop losses, so make sure you consider your options before placing it. Don’t forget to research the power of a trailing stop.
What is so great about Demo Trading?
Well, how about protecting your capital from mistakes or poor trading strategies. A demo account will allow you to learn the platform as well. The real power of demo trading or what is also known as paper trading, is the testing phase you can put your trading style or robot through before you put money in a live account. You can always demo along side a live account if you want to make modifications or to rabbit hunt to see if the trade would have worked in your favor. A great part about demo trading accounts is; they are using live quotes from the market, so it is as real as a live account. This gives you the ability to sharpen your trading skills whenever you want.
Which Forex broker should I use?
Another great question you need to ask your self before trading live. We found that using a regulated broker who offers great customer service and the best Forex platform as some of the core things to look at. You can check out our Forex broker reviews for more information and remember all these dealers offer a free demo account and rebates.
Which trading platform should I use?
This goes hand in hand with the broker you choose, but if you stick with the Metatrader platform, you will have plenty of options with a broker selection. The Metatrader platform allows you many different options in one spot. Automated trading is by far the most important factor, but ease of use is another. You can use a demo Metatrader 4.0 account forever. There are other platforms available, but for the average trader you will be happy with the Metatrader platform.
How much Money do I need to trade?
The only money that should be traded is money you can afford to lose. Don’t bother trading your life savings or your full retirement account with confidence. The risk in trading is too severe to risk your lifestyle. The great thing about Forex is the ability to trade mini accounts as low as $250. Don’t expect it too turn into $100k over night, but at least it will give you the option to see how real money trading really looks and feels like. Also, please consider a Forex Bonus with your broker selection.
Mini accounts – The lot sizes are usually 1/10 of a standard lot and can be traded with small balances. High leverage available, but be careful.
Standard Accounts – These are full size lots and require a much bigger balance to avoid margin calls.
Which Forex strategy is right for me?
The best part about trading is that you have a lot of options when selecting what works for you. Obviously if you have a profitable strategy then why change what you are doing. Some options include:
Pivot point trading
So many more…
What is going to work for you may not work for others. You will need to take your time and test the things you like. Every one wants profits, but the realistic value needs to be considered. A free strategy on the Internet or buying Ebooks, may or may not be the best for you. If you do your due diligence, you will eventually find something that you like. Don’t force it.
What is an expert advisor?
An expert advisor or EA for short is the programming language used on the Metatrader platform that gives you the ability to create indicators and automated trading strategies. There are many things you can do with them and this is how we create and test our robots.
Do Forex scams exist?
Yes. Anyone saying that you can turn $250 into $1 million dollars is scamming you. There are too many gullible people in the world and unfortunately people like to take advantage of the suckers. There are also big companies like Refcofx who scammed all the investors out of there money due to some greedy people. Always do your due diligence, before putting your money somewhere. This goes for everything in life and not just Forex.
Can you make money trading the news releases?
Of course you can make money trading news releases. Some news releases are better to trade than others, but it is definitely possible to make some good money. Several methods include using an Auto execution program, an EA, or setting up a breakout strategy like we do for the NFP trade. News trades can be wippy, so you need to be prepared.
Are Forex robots a good way to trade?
This all comes down to the way you want to trade. Do you manually want to trade and day trade to make money or would you like to sit back with less emotions and let the machine do the work. Obviously finding the right robot will determine if this will be possible. Some people enjoy scalping, but some people enjoy making money in their sleep. It all depends on how you want to do it. Just keep in mind the power of the trading robots and the automated trading methods that exist.
How important is the spread when trading?
A few years ago this was a very important factor and still is, but since the competition increased over the years, the spreads have become fair with most regulated brokers. The one thing you need to watch out for are the brokers that increase the spread during volatile times in the market, like news time. Dealers have been known to increase the spread very wide, causing gains to turn into losses or just a lack of execution. Don’t always let the spread be your determining factor with your selection process, because if you are trading the news, then execution is much more important.
What is Forex education and should you pay for it?
There are so many factors involved with trading. Trading is all about learning on the job. Yes, it is recommended to read books and research everything there is to go along with trading, but to pay thousands of dollars seems absurd. If you have the money, will it help? Not necessarily. Some education programs hardly teach you anything. You can learn most of the basics online by just reading. Having a teacher may not be worth it. Now a mentor, is something worth paying for if you can find a good one. The cost of education usually comes down to trading for yourself and see if you can learn on the job. You may lose for awhile, but you are getting the hands on experience it takes. Some big traders say your loses early on in your career is the real education costs. Education is very important, but paying big bucks for it is questionable. You can use that money in many other ways.
Are managed accounts better then trading for myself?
Managed accounts are almost like sticking your money in a Mutual fund and hoping they go up. If you can find a good managed account then you may want to try it if you have the assets. Things you need to consider are; you are not trading for yourself and you have to pay huge fees on the gains you make. Definitely do your due diligence before having someone managing your account for you. There are ways you can create your own managed account using a product that piggy backs what these managers would do with your money, only you keep all the profits.
How important are mentors or web sites like Forexnewstrader.com to the novice trader?
Having a mentor could be the difference of making money trading or not. A mentor will give you guidance on your trading style. Finding one is of course a challenge, but when you do it will pay dividends. As for web sites like forexnewtrader.com, you can gain a lot of information you wouldn’t be able to find in books or on TV. These sites empower the trader to go on their own and try to do it for themselves. There are plenty of noob traders that fail every day, so free information is a good thing.
How are Forex taxes paid on earnings?
If you are a US citizen, you must pay your taxes on the gains you make. Like any CPA will tell you, “you made money, that is good, but you must pay your taxes”. Usually the broker dealer will issue you a 1099 if they are located in the United States. If you trade with a firm outside the US, you will have to make sure you keep your own records. Unlike stocks, you don’t have to track every buy and sale, you only need that final number. It makes it pretty easy come tax time. Don’t let taxes scare you off.