Getting Started in Forex
Getting started as a forex trader is arguably considerably easier than it is for a CFD trader, or a trader interested in share dealing. As financial markets go, the barriers to entry in terms of capital are comparatively low, and the range of information you need to understand and research is much more limited. As a result, you generally need to spend less time and money to get yourself to the stage where you can realistically think about trading in forex. Here’s what you need before you can think about getting started.
A Demo Trading Account
The first thing you need before you can consider investing you own money in the markets is experience. Not experience in the sense of trading the markets over ups and downs per se, but the experience of using a forex trading platform, the experience of executing trades, and the experience of testing out different positions in a safe, risk free environment. The best way to achieve this level of experience before you hit the markets for real is through a demo trading account. A demo account is essentially an account with a forex broker that allows you to trade the real markets in real time, only with virtual currency. This enables you to become familiar with the markets and how to trade without losing any money in the process – a bonus, and a must-have for any new trader.
While demo trading is all well and good, you’re going to need to get yourself to a stage where you have some capital to invest in the markets for real. With forex trading, this doesn’t have to be an astronomical sum. Bear in mind that when you’re trading the forex markets, you’re effectively trading on as much as 99.8% leverage. That means you only need to cover 0.2% of your trading account, so it can be possible to have a notionally decent trading account with much less of a capital outlay in the first instance. Remember in any event that you should only trade what you can afford to lose, given the risky nature of the forex markets.
A Forex Trading Account
In addition to accessible capital to trade, you also need a trading account through which to access the markets and actually execute your orders. Choosing a forex account and a broker is a more time consuming and complex task that it might appear on the face of things, and as a highly competitive market there is legwork to be done to find the best deal. And it’s worth doing – the differences between the most expensive providers and the cheapest providers are considerable when multiplied over a number of transactions, so you owe it to yourself to find the best deal and effectively the lowest handicap to your overall profits.
A diary is a wise investment at this stage, or even an electronic calendar will suffice. There are certain weekly, monthly, quarterly and annual events and announcements you need to take note of, where interest rates are being set for example, or where other instances of importance to currency values occur. These happen on pre-published dates, and it’s important that as you uncover these in your research, you make a note of when announcements are being made and when data is being released so you can keep on top of your trading decisions in the run up to it. This will help you keep track of everything that’s going on that concerns your portfolio.
You also need a strategy in place if you’re hoping to get started trading with any success. A strategy is what sets your trading in context and gives you the ability to set and reach targets on a consistent basis. Strategies take out much of the research work involved in finding profitable trading opportunities, by setting defined ways in which you can trade. For example, if you’re employing a day trading strategy, you will be necessarily looking for the most wide-ranging trends over the shortest period of time, because of the requirements of your strategy. Strategies give guidance and support to your trading, and are pivotal in your long-term success.