The purpose of this article is to introduce the Forex market to those who are new to this subject or have limited skills trading currencies. As with many markets there are many derivatives of the central market such as Futures, Options and Forwards. In this article we will only be discussing the Forex Market.

The word FOREX is derived from the words “Foreign Exchange” and it is the largest financial market in the world. Unlike many markets the Forex Market is open 24 hours per day and has an estimated turnover of $1.5 trillion every day. This tends to lead to a very liquid market and thus a desirable market to trade because the volume is always there.

Unlike many other securities the Forex Market does not have a fixed exchange. It is primarily traded through financial institutions, banks, brokers, dealers and private individuals.
Trades are executed through phone and, increasingly, through the Internet. It is only in the past few years that the smaller investor has been able to gain access to this market. Formerly, the large amounts of required deposits precluded the smaller investors. With the advantage of the Internet and the growing competition, the Forex Market is now easily within the reach of most investors.
The Foreign Exchange Market owes its existence to the 1971 abandonment of the Bretton Woods accord and the subsequent unwinding of the regime of universal fixed exchange rates.

Although currency trading is inherently governmental (central banks) and institutional (commercial and investment banks), the Foreign Exchange market is also the province of non-banking international corporations, hedge funds and individual private investors and speculators. Technological innovations like the Internet have made it possible for private investors to monitor currency markets and to trade via intermediaries (Forex Brokers).

The Forex Market is very attractive to private investors because :

1. They can trade 24 hours/day, 5 days/week with permanent access to global dealers, just by using an Internet connection or a phone;

2. The “playground” is an enormous liquid market which makes it easy to exchange most currencies;

3. The market volatility leads to large profits in a very short time (e.g.: +USD 300 / 20 minutes trading session);

4. Leveraged trading with low margin requirements;

5. No commission charged by the Forex Brokers.

The Forex trading instruments are margin products, which means that your investment exposure can be a multiple of the cash that you lay down.
Margin enables traders to trade in markets with high minimum units of trading, and enhances the profit rate.

Forex is still a relatively unknown territory and most investors are afraid of investing in it.
It is true that it is the most venturesome trading market.
Advantages entail possible disadvantages.
Any novice trader can lose his entire trading investment within minutes. The same risk applies to experienced traders, too.

In Forex trading, anything can go wrong, against you. Trading is not gambling. It is a solid means of generating income. Income comes to those who approach the market with knowledge and a serious level of education and trading experience. Safety and longevity in trading come from properly educating yourself on how the markets work first, and then knowing how to manage your risk.

The most important thing in Forex trading is discipline!
Any potential Forex trader must become familiar with the Forex Market and the language and terminology of trading.
Most online investors hit the computer screen mentally and emotionally unprepared.They pay dearly for their lack of education and discipline. Investors should understand and overcome the psychological pressure of electronic trading, and enter the trading arena clearheaded and ready to face every showdown.

Traders have to gain self-determination and competence and as they learn to accept the phrenetic ups and downs of online trading. Trading is an intense, psychological battle. In order to win, traders must constantly weigh the analytic and intuitive sides of trading.
Most traders violate their pre-established plan and take their profits before reaching their profit target because they feel uncomfortable sitting on a profitable position. These same people will easily sit on losing positions, allowing the market to move against them for hundreds of points in hopes that the market will come back. Remember that the market may never come back!

We believe that the best trading strategy is thinking taking into account the losses rather than the profits.
Minimizing the losses makes the profits larger, by default.
This might be very helpful at least for creating your own trading discipline.

It is important to keep your trading simple. Many traders start out with a simple strategy that is successful but find themselves chopping and changing trying to find a better one that leads to larger profits. They also allow themselves to be influenced by other people’s opinions and too many fundamentals, technical analysis and/or forecasts.
Don’t allow yourself to become confused with too much information and, if you’re not sure or not in the right emotional frame of mind, don’t trade.

There are a lot of websites providing accurate (or not!) market forecasts and analysis and even automated trading systems. None of them guarantee 100% information accuracy.

You should never trust something like “Our trading strategy guarantees 100% profitable trades”. All this kind of services provided by various companies, analysts and/or traders should be used for informational purposes only. Of course, you can use these pieces of advice for trading purposes but remember that you are doing it at your own risk and nobody will pay back the amount of money you may lose while trading.

Try and trade without thinking about the amount of money you may gain or lose. Trade thinking about points (pips), no matter how many contracts you are trading or even if you are trading a demo account.

As we mentioned before, trading education is very important.

If you decide to participate into the Forex Market as a trader, you should read a lot of trading tutorials and take advantage of many training resources. The best way to get familiar with Forex Trading is practice. Every potential trader should practise FX trading using Demo accounts. Most of the Forex Brokers offer this type of accounts, which are free. It’s very easy and costs nothing. The demo trading works exactly as the live one. There is a single difference: with a demo account you trade virtual money.

When trading a demo account most people do very well. They trade without fear. As soon as they start trading real money, even on mini account, they suddenly find themselves trading in a manner in which they miss many opportunities and accumulate many losses. They simply lose their self-control and give in to fear and greed.

Using the demo accounts, you have the opportunity to learn about and become familiar with different styles of trading platforms and the various features each has to offer and also test trading strategies, plans, learn about the technical analysis and even develop your own trading strategies.

There is simply no substitute for the particular experience of trading real money on a live trading account. That is why it is very important to learn the various platforms and their features as well as the different trading strategies and the potential risks associated with each one.

Once you consider yourself experienced enough or at least trust your trading discipline you may want to try investing real money and trade with a mini account. Opening a mini account costs ~USD300 . That allows you to trade at 200:1 leverage (e.g.: you trade USD 10.000 lots and get 1 dollar profit for every pip. This mean that you could earn a profit of 30 dollars or even more in a single trade, within a short period of time)

You must understand the fundamentals behind your investment ideas but also the Technical Analysis. When your fundamental and technical signals point to the same direction…you have a good chance to have a winning trade.

Also, you must understand that psychology plays a big part in trading. The fact remains that the markets move based on fear and greed.
Fear of missing out on a possible trade, fear of missing out on profit, fear of losing money, fear of missing a run.

Currencies may react aggressively to fundamental announcements. Educated traders respond rather than react to those announcements. Fundamental announcements, where there are unexpected surprises, can create trading ranges of perhaps 100 to 300 pips in a single trading session. Consolidation usually takes place before most major fundamental announcements. “Straddle the market” becomes the trading strategy of choice to take advantage of the “break-outs”.

To the technical trader or analyst, the chart is nothing more than what an x-ray is to a doctor. It is an instrument offering the way to a productive end result. It is telling a story. The greatest story it tells is the high probability of the next market move. The educated trader will determine whether the trade aligns with their equity management and choose to get involved or not get involved. Why? Drivers love to drive, doctors love to cure, and traders love to trade. Either way, to the educated trader, failure in trading is not an option.

The traders should probably trade what they see, not what they feel!

Every Forex trader is using charts and technical analysis. But all the technical instruments must be used along with the fundamentals. Both are very important when predicting the market trend and a trade’s entry/exit points.

The more profound your ideas, the longer it will take for others to see them as well and thus the longer it will take for markets to move your way. Be patient and give yourself and your trades time.

The Forex Market is constantly changing and adapting, which forces you to do the same. Prices are moving like waves, meaning that, as in sea surfing, you must wait and catch the big waves.

Prior to placing the trade you must have your game plan prepared. Your game plan is your business plan or, in other words, how you plan of making the trade. Before making the trade, there are a few criteria which are recommended to be established: entry price, exit price and stop loss price.

Every trader should develop his guidelines according to the amount of risk he is willing to take. Accordingly, these guidelines must be reasonable. It would not be considered prudent or reasonable to open an account with $5,000 and expect to lose 10% on each trade. After 10 trades of $500 losses, the account would be closed. So, expectations and risk must be reasonable to account size and market conditions, as well as to your level of experience.
Don’t trade with money you can’t afford to lose!

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