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The Forex (foreign exchange) market, sometimes referred to as the currency market, is much larger than the stock market. To gain some perspective, it would take thirty days worth of trading volume on the largest stock market platform, the New York Stock Exchange, to equal a single day of Forex trading. Additionally, the global currency market is open for business 24 hours per day, five days per week. This liquidity and access is an obvious lure to traders looking to build their portfolio quickly. Keep in mind there is a fortune to be made and lost with Forex. Before you open an account and start taking trades, do yourself a favor. Learn how to trade in Forex first. Here’s a good start with the following critical Forex trading tips.
Step One: Choose a Broker
As opposed to markets like the major stock exchanges, the Forex market is famously, decentralized, wide open, and unregulated. This means you must be extra careful when choosing a broker. There are plenty of legitimate ones to choose from, but watch out for the fly-by-nighters who open a snazzy looking website, scam a bunch of deposit money from new investors, and disappear. Trust us, it can happen. You best bet is to find a busy Forex forum and ask for input from veteran traders about which brokers they prefer.
After narrowing your list down, research which ones belong to voluntary regulatory agencies like the CFTC and NFA in the United States, the FSA in England, and the ASIC in Australia. While brokers are not required to maintain a membership in any organization, those who want to be perceived as credible, do so.
Step Two: Open a Demo Account
The scary and amazing thing about Forex trading is you can do everything from the comfort of your own home. If you have a good internet connection (we’ll talk about VPS Forex hosting in a minute – it’s critical for successful traders) and sound money management techniques, you could become one of the small percentage who become filthy rich.
The best advice we can offer out of the gate is to practice with a demo account before risking real money. Most legitimate brokers offer demo accounts for anywhere from 30 days to infinity. This allows you to practice strategies under real world conditions but without risking real money. When it comes to understanding Forex trading, using a demo account should be mandatory. Keep in mind you’re trading against seasoned pros who spend all day, every day taking money from amateurs. You don’t want to go toe-to-toe with them until you know the game.
Step Three: Are You a Technical or Fundamental Trader?
In general, Forex traders fall into two categories. The first relies on technical analysis (TA). The second on fundamental analysis (FA). Don’t get too caught up in the details. The difference is easy to understand. With TA, a trader analyzes price movement by watching how it reacts to a variety of indicators he or she puts on their computer screen. Decisions to buy or sell depend upon mathematical calculations done behind-the-scenes within the indicators. As you can see, TA traders pay attention only what price action tells them at any moment in time. On the other hand, FA traders study the underlying economic and political factors at work within and between countries. At its foundation, a currency trade involves exchanging the currency of one country for another. The factors that affect a country’s economic health – GDP, unemployment, housing, political stability – are used to assess the relative strength or weakness of its currency.
Step Four: Hosting for Forex
Probably the most important among these Forex trading tips is related to your internet connection. It does make a difference what type of hosting account you choose. In all instances, a Forex trader should consider VPS for Forex hosting. And, yes, it does make a difference. Successful Forex trading is a game measured in seconds. It is imperative you trade through a connection that does not crash, hang-up, or expose you to a severe latency delay. A Virtual Private Server (VPS) hosting account insures that you have access to the critical system resources – memory, RAM, bandwidth – when you need them and won’t be forced to share them with hundreds (or thousands) of other customers.
A Final Word
Once you have the preceding in place, you’re ready to finalize a trading strategy and begin practice. A strategy is simply a set of rules you create that dictate when you will open and close trades, how much money you will risk, etc. You will notice Forex forums devote a lot of time to finding the Holy Grail of Forex trading strategy. Here’s a secret. It doesn’t exist. There are dozens, maybe hundreds of profitable strategies to be found for free online. The secret to your ultimate success is how well you can implement one. Good luck!
