Website design By BotEap.comAs a new forex trader, one of the questions you may have when you start looking at this market is ‘what am I really buying or selling?’ The short answer to this question is nothing! The retail FX market (FX = Forex = currencies = currency) is purely speculative and no physical exchange of currencies ever takes place. All transactions exist simply as computer inputs and are settled based on market prices. The reason the market exists is to allow large companies and financial institutions to easily trade large amounts of currencies. These make up about 20% of transactions. The rest are speculators like you and me who just trade on rate movements! You also need to appreciate that the market is not regulated, it regulates itself!

Website design By BotEap.comThe leverage offered in the forex markets is extremely high for the simple reason that if you were trading real money most traders would not have enough cash to allow sensible trades to take place. The smallest movement is a ‘pip’ and in an amount of US$1000, a movement of 1 pip would result in a profit (or loss) of 10 cents. Now keep in mind that a move of 100 pips in one day is a reasonably sized move, so you could make $10 on the day. This hardly gets the pulse racing!

Website design By BotEap.comTo overcome this problem, forex brokers offer leverage to allow you to trade at significant levels. These range from 1:50 to a 1:400 suicide, which means that for $1,000 in your account you could trade $400,000 in the market (this equates to $40 per pip move), so for one move 100 pip in the wrong direction, you would have lost $4,000. With only 1000 USD in your account you would have received a margin call or the broker would have closed you out, not bad for day trading! This is why forex trading is such a high risk and only for experienced traders.

Website design By BotEap.comOne of the unique aspects of the forex market is that we don’t have any volume to aid us in reading our chart, so your candlestick analysis has to be excellent, as you’ll need to forecast price movement solely from the candles themselves.

Website design By BotEap.comNow for a quick lesson on currencies. All major currencies trade as a pair, such as GBP/USD or EUR/GBP. Each currency pair has its own chart and, as expected, there is a spread between the two currencies. This varies from broker to broker, as does leverage. Another unique aspect of forex trading is that there is no commission! Suppose you think that the price of GBP/USD is rising (the dollar is weakening against the pound), then you might decide to go long sterling. By buying the pound, you are automatically selling the dollar. Each pair has a quoted price of ‘pip’; it normally has 2, 3 or 4 decimal places, depending on the currency. For each pip movement you would win or lose 1USD. If you wanted to sell (or short) GBP/USD, you would sell a contract instead. It really is that simple. Of course there are other aspects to consider such as fundamental data, etc. but in essence that is really all.

Website design By BotEap.comUnfortunately, this simplicity belies the risks and dangers involved thanks to the leverage required to make a significant trade. Just like online poker, it’s very easy to open an account and get started. The typical cycle goes something like this: the new trader jumps in full of confidence and optimism with a small amount of money, opens a large position with high leverage, and disappears very quickly. Having learned lesson one, they then come back some time later with a larger fund and trade much smaller lot sizes (contract sizes) until they have accumulated experience. They may or may not be successful. I did the same myself, but I was lucky. I hurried and opened six positions, all with a contract size of 10. So I was trading $600,000 in a world market of trillions, with no prior experience or plan. In a few hours he had negative $2,500. I sat up all night and watched positions move further and further through Asian trading. I have no idea why I stayed up all night. I probably thought that I could influence direction with the power of positive thinking! To cut a long story short, I managed to close with a profit of a few hundred dollars the next day. I was lucky, you probably aren’t so lucky. When you come to this market, learn from the above. The main reason why most people fail in forex trading is due to lack of funds. Because you can start with a very small amount of money (and trade large amounts), this is what most people do: they lose their money fast. The only reason I survived was because I had over $10,000 in my account. In my opinion the minimum you should start with is $5,000 dollars and preferably $10,000

Website design By BotEap.comAll brokers offer a demo account for you to practice your trading skills. However, I don’t think they add any value at all. It is only when you start trading real money, however small, that you begin to learn and develop your trading style.

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