Getting Started In The FOREX
Market
You have read about the foreign
exchange market (FOREX) and some of the investment advantages it offers. So now
you would like to try it out, but don't know where to start. This section will
give you the basics in FOREX and tell you what you need to participate in this
fast growing investment field.
Foreign exchange used to be limited to
large players such as national banks and multi-national corporations. In the
1980's the rules were revised to allow smaller investors to participate using
margin accounts.
Margin accounts are the reason why
FOREX trading has become so popular. With a 100:1 margin account, you can
control $100,000 with a $1,000 investment.
FOREX is not simple, however, and
education is needed to make wise investment decisions. Although it is relatively
easy to start trading on the FOREX, there are risks involved, so finding out as
much as possible about the market is a good move for any beginner. (Some of the
risks were outlined above, but others do exist and it is up to you to find out
as much as you can about them)
FOREX traders usually require a broker
to handle transactions. Most brokers are reputable and are associated with large
financial institutions such as banks. A reputable broker will be registered as a
Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission
(CFTC) as protection against fraud and abusive trade practices.
Opening a FOREX account is as simple
as filling out a form and providing the necessary ID. 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. Once your account has been
established, you can fund it and begin trading.
Many 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.
Remember though, I do not recommend a
margin ratio of larger than 100:1 because of the increased potential for very
large losses.
Paper Trades: A Must For All New
FOREX Investors
Beginner traders are STRONGLY advised
get accustomed to FOREX by doing paper trades for a period of time. Paper trades
are practice transactions that don't involve real capital. They allow you to see
how the system works while learning how to use the various software tools that
are at provided by most FOREX brokers.
Each broker has their own set of
software tools to aid in making transactions, but there are a few tools that are
common to all FOREX brokers. Real time quotes, news feeds, technical analyses
and charts, and profit and loss analyses are some of the features you should
expect to see on most online brokers' web sites.
Almost every broker operates on the
Internet. To access their online services you should have a reasonably modern
computer, a fast Internet connection, and an up-to-date operating system such as
Windows XP.
Once your account is set up, you can
access it from any computer – just enter your account name and password. If for
some reason you are not able get access to a computer, most brokers will allow
you to make trades over the phone.
Remember, trades are commission free,
meaning that you can make many trades in one day without worrying about
incurring high brokerage fees.
Brokers make their money on the
'spread' – the difference between bid and ask prices.
