What is Forex Trading?

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Before you start trading in the Forex market, you need to know what Forex is all about. Forex is short for Foreign Exchange. It carries multiple names such as FX, 4x, and Spot FX. We are focusing on the retail Forex market which is for all individual traders. Currency trading is by far the largest market to trade in on the planet.

The commodity that is traded is actual currency. For example, if you would like to sell Euros and by US dollars, you would do this trading the EURUSD currency pair. Most Forex brokers offer you many different pairs to trade. When starting out you may want to stick to the big pairs connected to the US Dollar. These include eurusd, usdchf, gbpusd, and the usdjpy. These pairs tend to have the most fluid movements and the best liquidity. Once you are ready, you can then venture out into other pairs.

If you need a complete beginners guide to the Forex market, you can find plenty of information by typing a search in Google. This guide is setup to give what we think are the Top 20   items to think about before trading with your own money.

What kind of risks am I up against?

The risk involved with trading Forex or any other commodity is very large. Brokers, services and every one will tell you, that the risks are extreme and that you should only use money you can afford to lose. This makes perfect sense for the industry to cover their backs, because they know most people lose money trading Forex. To reverse this, you need to figure out a way to make money versus losing. If you can do this, then the warning signs you read every day can be pushed a side for a later date. Always remember that Forex trading is very risky and should not be taken lightly.

Will my emotions be a factor?

Besides money management, this may be the single most important factor. When day trading, or any other form of money investing, you will run into what is called the emotions of trading. If you care about your investment making money or losing money then you are emotionally involved. If you think you can trade any market with out emotions then wait until you take that first sizable trade and lose. Over the years we have found, the less emotion you use the better you will be, win or lose. This is why we have been focusing on using a robot trading style and staying out of the market when we can.

How important is money management compared to everything else?

This is right up there with emotions as one of the biggest pieces of the Forex trading puzzle. Without a money management system in place, you will not have complete control of the money in your account. If you expect to turn $200 into $10,000 in one week, then you should just look the other way and find something else to do with your money. Too many false expectations will lead to an account with $0. You need to make sure you understand how much to risk on each trade and how it will affect your whole account. Ten trades may make you money, but one trade could ruin you in no time. Find your threshold and only increase it if you are profitable.

Will I make money or lose money trading?

This question is hard to answer. The odds are against the average retail trader and you will most likely lose money. Some people only lose a little bit but a lot of people get so emotionally involved that they end up blowing their accounts completely. This is something you need to avoid at all costs. This is where trading small mini accounts or demo accounts really help contain your loses early on. Forex rebates will also lower your transaction costs, which can hurt an account as well. Don’t get us wrong, there are many people who are very successful and we will do everything we can to help you be profitable.

 

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