You
have been hearing about the foreign exchange market (FOREX) and the
investment advantages it offers for some time. You would like to give
it a try, but aren't sure how to start.
We hope that this short guide to FOREX will give you some of the basics of foreign exchange trading and give an overview of what you need to to know in order to
participate in this fast growing field. Read on to learn the
basics you need to know on how to start trading FOREX.
Foreign exchange was once limited only to
large players such as national banks and multi-national
corporations. In the 1980's the rules were revised, allowing
smaller investors to participate using margin accounts. Margin
accounts are the reason why FOREX trading has become so popular with
small investors.
With a 100:1 margin account, you can control $100,000 with a $1,000 investment.
FOREX is not simple, however, and education
and study are needed to make wise investment decisions. It IS
relatively easy to start trading on the FOREX, but, as with any other
form of investing money, there ARE still risks
involved. As in so many new endeavors, especially those
involving money, finding out as much as possible about the market in
advance of becoming involved in it is a good move for any beginner.
FOREX traders usually require a broker
to handle transactions.
Most brokers are reputable and are
associated with large financial institutions such as banks. Reputable
brokers will also be registered as Futures Commission Merchants (FCM)
with the Commodity Futures Trading Commission (CFTC) as protection
against fraud and abusive trade practices.
To open a FOREX account, you fill out a form and providing the necessary ID.
How hard is that?
The form WILL include a margin agreement
that states that the broker can interfere with any trade it deems to be
too risky. This is to protect the interests of the broker.
Most trades, after all, are done using the broker's money and
this is obviously a precaution a prudent broker would want to take.
Once your account has been established, you can fund it and
begin trading pretty much immediately.
Brokers have different types of accounts to
suit the needs of individual investors. Mini accounts allow
you to get involved in FOREX trading for as little as $250, while
standard accounts may have a minimum deposit of $1000 to $2500
depending on the broker. The amount of leverage –
using borrowed money – varies with accounts. High
leverage gives you more money to trade for a given investment.
NOTE
Novice traders are advised to get accustomed to FOREX by
doing paper trades for a period of time. Paper trades are
just practice transactions that don't involve any real capital. This
will allow you to see how the system works as you learn how to use the
software tools that are provided by most FOREX brokers.
Most online brokers also have demo accounts
that allow you to make free paper trades for up to 30 days.
Every new FOREX investor is well advised to use these demo
accounts at least until their trades are showing consistently steady
profits.
Every broker has his or her own set of FOREX
software tools to aid in making transactions, but there are a
few tools common to all FOREX brokers. These include real
time quotes, news feeds, technical analyses and charts, and profit and
loss analyses. These would be some of the features you should
expect to see on most online brokers' web sites.
Almost every broker operates on the Internet
these days.
In order to access their online services you
should have a reasonably modern computer, a high speed Internet
connection, and an up-to-date operating system such as Windows
XP.
Once your account is active, you can access
it from any computer – just by entering your account name and
password. If for some reason you are not able get access to a computer,
most brokers will still allow you to make your trades over the phone.
Trades are commission free.
This means that you can make many trades in
one day without worrying about incurring high brokerage fees. Brokers
will make their money on the "spread" - the difference between the bid
and ask prices.
