5 Steps to Learning Forex Trading Online

Learning forex trading online has opened up possibilities for many people. The foreign exchange, or Forex, currency markets used to be dominated by large banks and corporations, but the Internet has changed that, allowing regular people to supplement or replace their incomes by trading online.

It is very tempting to jump straight in, lured by the prospects of riches and perhaps "investing" in a $97 Forex robot which promises to do all the work for you. But to make it more than a failed effort, you need to understand the basics, and think for yourself.

1. Firstly, you need to understand what is happening when you trade Forex online. You have a large amount of "leverage" available which can help you profit, but which will devastate your account if you do not understand what you're doing. The Forex market is based around the idea of buying one currency with another, which means that you always deal with pairs of currencies, and never a single one. There are perhaps only six pairs of currencies which dominate the trading market, and to start with you would do best to concentrate on these.

2. When you look at the prices, you will see there is a "bid" and an "ask" price quoted which are not quite the same. The difference between them is called the "spread". One is the price that you can "buy" a currency at, and the other is the price you "sell" at. If you open the trade and close it immediately, then you don't get all your money back, but lose the spread, and that is how your Forex broker makes money for his work. You usually do not pay any separate commissions in Forex, which is unlike trading in the stock market.

3. Currencies are usually traded in "lots" of 100,000 currency units, though smaller lots have been made available by brokers to allow more people to take part in Forex trading. Your broker will usually allow a leverage of 100 to 1, which means you are staking 1000 currency units to trade a standard lot. You will need more than $1000, however, as the price can go up and down and the broker wants to know that you have sufficient funds to cover any losses. The exact amount required will depend on your broker, who will base it in part on your financial background and situation.

4. Now that you have an overall view of the market that you are intending to trade, you need to develop some strategies and trading plans so that you do not immediately lose your capital. Most traders spent some time studying technical analysis, which gives indications of the expected price movements based on historical information. When you are experienced, you can develop your trading strategies independently, but to start with you will probably adapt and use trading plans developed by others.

5. Finally, before risking any funds, you should test your trading ideas and get a feel for the way the market works by "paper trading" with a demo account, which involves imaginary money, and does not risk any of your resources. This also allows you to test out your strategies. Your online broker will usually provide this facility.

Once you have done all this work, and feel comfortable with the concept and mechanics of Forex trading, it is time to "go live" and start trading with real money. When you start you should concentrate on preserving your capital, and remember that you do not always have to be in a trade if there is nothing suitable.

Recommended books from


[CaRP] XML error: not well-formed (invalid token) at line 1 -

Liquidity Strained As Forex Traders Head For Safety - Wall Street Journal
16 May 2012 at 5:32am

Globe and Mail
Liquidity Strained As Forex Traders Head For Safety
Wall Street Journal
The buck rose across the board Wednesday, pushing other major currencies lower and hammering emerging-market currencies as investors headed for safety following Tuesday's failure by Greek politicians to avoid fresh elections.
FOREX-Greek worries weigh on euro, ris...
 
How to Trade Forex as Euro Reaches Four-Month Low - MarketWatch (press release)
17 May 2012 at 12:32am

How to Trade Forex as Euro Reaches Four-Month Low
MarketWatch (press release)
Through forex trading provider City Index, we look at the recent news out of Greece and how you can trade on this global currency market. With no resolution in sight between left and right wing party leaders, investors are asking if or when Greece will ...

and more »
 
Trading Forex With the MT4 on iPhone® - Sacramento Bee
16 May 2012 at 11:20am

Trading Forex With the MT4 on iPhone®
Sacramento Bee
Investors choosing to trade forex with FX Solutions LLC can speculate on price movements within the global currency market by responding to national and international economic, financial and political events. They use this form of analysis to place ...

and more »