Why do you want to get into Forex Trading?
This is quite important, as it often determines your whole approach. Have you been told it’s an easy way to get rich? What are your expectations? Forex trading is not a walk in a park. You need to be in it for the long haul if you hope to make substantial profits.
Some people approach Forex Trading as longer term investment. They stay in trades for long periods of time (weeks, months). Others do more short term trading (days…some down to seconds). The type of trader you become depends on your comfort zone, how much money you have and how much time you have. Sometimes, you have to begin to truly find out. That’s why demo trading is such a good thing.
Whatever illusions you have at the start…get rid of them and focus on learning all you can.
What is your background?
What skills do you have that might be of use in starting Forex Trading? I was a programmer in my previous job. Consequently, my first thought was to try and program my own system. That influenced the type of Account I opened etc. I was also interested in watching the news. I was therefore able to change that slightly to include more Financial and Economic news.
What is your situation right now?
What is going on in your life right now? Are you hoping to be able to trade in the evenings because you work during regular hours. Are you un-employed or in a job that affords you a lot of free time? Do you have constant access to the internet? Each will influence how you set your trades up. If you are getting into trading and don’t have that much time, you might have to utilize trading tools like Stop Losses, Take Profits (a Combination sometimes, with a one-cancels-the-other Order) a lot more often than if you had the time to stay watching the screens.
This type of trading means you have to be even more strict with yourself, as you might be unable to get to your computer to cancel a trade if something goes horribly wrong during the day. You need to sure before each trade how much you are willing to lose (most important!) and what your target profit is.
How much money do you have to invest?
It is possible to start a Forex mini-Account for 300 Dollars. While the opportunity is welcomed, it is also potentially dangerous, particularly with the amount of leverage open to you. Whatever amount of money you have available, you should adjust your leverage accordingly. You should not risk more than 5% of your account on any trade as a maximum (most traders will advise more along the lines of 1-3%). You might find that 300 dollars won’t get you very far, particularly if you are in a bit of hurry to start cashing in, as most newbies are.
Brokers are making quite a bit of money off new forex traders as they easily wipe out their accounts. Then they do it again and again. Don’t be in a rush. If you don’t have enough money right now, do more Demo Trading. Learn your strategy. You will do better once you start to put more money into it.
Which Broker should you use?
There are a number of big ones available now. Do your research. There’s much information so that should not be a problem. When I first started Forex Trading with a Demo Account, I used Meta Trader 4 Platform. This platform was really good to test out Trading systems and custom indicators. That was my main Driver for selecting a Broker. However, later on, I was more interested in being able to access charts over the internet and my mobile phone, so I had to change my primary Broker.
Think about these factors and make sure your final choice has all the options you require.
Trading System or not?
You will encounter this debate often. I don’t particular care for this question myself. I think that it is fine to use whatever system you want, as long as you have tested it extensively (Demo account again) before you try it the real world. You should have a fundamental understanding of the Markets as well. Once you have that, then a System could do you some good. You might even be able to systemize your personal strategy!
At the end of the day, Forex Trading is really an exercise in controlled risk. You do some evaluation (whether Technical or Fundamental), then you make a decision to enter a trade. You must know how much to risk (not more than 5%!) and what your target is. Then enter the trade. You don’t necessarily have to wait for the price to hit either target or stop loss. You should re-evaluate your trades when possible. That’s it, in very simple form.
Follow this, and you’ll do well. Bottom line, if it feels like a Dice Throw, you are doing it wrong.
BabyPips.com is one of the best resources online for learning about forex trading.