Forex Currency Trading: How To Get Started

There are several things to consider before getting started in forex currency trading. Initially, you'll need to select a broker that is right for you in order to facilitate your trades.

Compare Brokers for Better Profitability

The spread generally referred to as the bid/ask spread is what brokers charge instead commission fees. While comparing brokers you’ll notice that spreads in forex currency trading fluctuate much like in the stock market. Make certain you’re receiving the lowest spread available because it means more profit in your pocket.

Use Qualified and Reputable Firms

Forex brokers are typically associated with large banks due to the large amount of capital that is required to operate in the forex market. Make certain the forex brokers you’re considering are registered with the Futures Commission Merchant (FCM) as well as regulated by the Commodity Futures Trading Commission (CFTC) as a registered National Futures Association (NFA) member.

Evaluate Research Support Services

Forex brokers offer various trading platforms for traders like brokers in other markets do. These trading platforms provide real-time charts, technical analysis tools, real-time news and support for various trading systems.

Prior to committing to any one broker use free trials and practice accounts to compare trading platforms and services.

Keep Your Leverage Options Open

Leverage is a ratio of total capital available to actual capital which is the amount of money a broker will lend you for trading. Take for example the ratio of 10:1, this means that your broker will lend you $10 for every $1 of actual trading capital.

Select a Trading Account That Fits Your Budget

Forex trading brokers offer several accounts. The smallest account you can open is the mini account that only requires as little as $300. The standard forex currency trading requires a minimum of $2,000 initial capital to start and gives you an option to trade with a variety of leverages.

A premium account can require $5,000 – $10,000 to get started. It offers the same leverage options as the standard as well as additional tools and services. At the end of the day, select the broker that has the right leverage, tools, and services that meet your budget needs as well as your investment goals.

Basic Forex Trading Strategy

Forex trading strategy begins with fundamental and technical analysis. Here’s why each analysis is important for creating a solid forex trading strategy:

Fundamental Analysis

Attempting to value company stock is sometimes difficult. But valuing a country’s currency is a different ballgame altogether. Fundamental analysis is mainly used to foresee and better understand long-term trends in the currency market.

The overall political, economic, and social climates of a specific country are the primary issues measured in fundamental analysis.

Technical Analysis

Technical analysis is widely used to analyze the forex because it identifies and measures sustained trends. Some specific examples of technical analysis used in forex are:

• The Elliott Waves
• Fibonacci Studies
• Japanese Candlesticks
• Pivot points

Successful traders use a combination of the above to make more accurate predictions. Others prefer to create trading systems to consistently identify buying and selling opportunities.

Choosing Your Strategy

I recommend a combination of fundamental and technical analysis to develop a personal forex trading strategy. Your strategy will consist of three vital factors; the currency pair you trade, technical indicators for entry/exit plans and risk management.

The most profitable and consistent traders are the ones with the best risk management systems. To trade successfully you have to ask yourself the following questions; how much equity do I need to start? How much should I risk on any one trade? Am I under-capitalized?

Once you have the knowledge of how the forex currency trading works open a demo account and paper trade to practice until you have what it takes to make a consistent profit. It’s important to take the time to build, test and implement a sound trading plan before you put capital at risk.