A statistic we often see when discussing foreign currency, or forex, trading is that 90-95% of traders fail. Is it because the foreign currency market is so difficult or risky that only a gifted few with special secrets can master it? No, there are no secrets. There are definable reasons for trader flunk-outs. Here we'll examine some of those reasons so you can avoid them and put the odds in your favor to succeed.
1. Trading Too Soon
As tempting as it is to install that new algorithmic forex trading software and open an account with your life savings to make it rich by next week, it's a sure-fire way to failure. Take the time to learn! There are so many resources available with articles, websites and forums that there really isn't any excuse to not do your homework. Get a demo account and work with it under real-time market conditions to learn to analyze and place your trades, demo your trading system and make sure it works before putting your money at risk.
2. Using Money You Can't Afford to Lose
Don't believe any hype that says that foreign currency trading is low-risk. It isn't, especially for the beginning trader. Even the most experienced traders lose money sometimes. Any money you invest in the markets must be risk capital or money you can afford to lose without impacting your basic financial security.
3. Over-Leveraging
Leveraging, or borrowing money to supplement your investment, makes it possible for individuals without millions of dollars to trade in foreign currency. Leverage allows for greater potential returns but also increases the potential for loss. If the trade, or investment, goes south, the loan principal and interest still has to be repaid.
4. Not Starting With Enough Capital
If your initial investment is too small, your profits can be devoured by fees that are proportionally higher than they are for larger accounts. Without adequate capital, you are restricted in the number of positions you can have at one time and unable to make good trades as they come along. It also prevents you from being able to diversity as you should to maximize profits and minimize risks.
5. Trading Too Big
You can lose lots of money fast if your trade is too big. Thinking you can risk 10-20% of your investment on a single trade in the hopes that if just a few are profitable you can double your money is a good route to failure. Your trading size should be based on your account size and the risk being taken. If a loss puts your long-term ability to keep trading at risk, the position is too big. Generally, experienced traders risk no more than 1% of their capital per trade.
6. Not Having a System
To be a successful trader you must have a system and the discipline to follow it. While there are probably as many systems as there are traders, you must have a plan and stick with it, taking emotions out of the equation.. It will include exact criteria to be met when entering and exiting a trade and be clearly definable.
7. Trading Emotionally
Trading can be very exciting and a big win, like in gambling, will make you want to do it again. It's tempting to jump right back in with a new trade, possibly without the space and perspective to make a good decision based on your system rather than the high of the win. Likewise, a loss can have a similar effect on your perspective resulting in an emotional trade, not a sound system based trade.
8. Thinking You Know it All
The educational process of forex trading never stops. Every single trade is a lesson and to start to believe that you have it all mastered and know everything there is to know is a good way to get a hard slap from the markets.
New traders will make mistakes. It's part of the learning curve and educational process and can valuable in the long term if you learn from them. Take the advice here so you can avoid some of the bigger mistakes too many make . It could save your money in avoidable losses, and potentially lead to more profits.
Tuesday, April 14, 2009
Understanding the Basics of Forex Trading
Are you interested in foreign exchange trading? Start with understanding the basics of the currency trading market, what it is and how it works.
There are a number of different terms used for the currency trading market, most commonly referred to as the foreign exchange market or forex, sometimes shorted further to fx. They all describe the international market which is found in the financial centers all over the world where currencies are sold and traded. It is one of the largest financial markets in the world with the daily volume of trades in the trillions of dollars.
Foreign exchange trading began in the 1970s when the gold standard ceased to be used. Before then, every currency in world trade had a set value against the US dollar. With the abandonment of the gold standard, currency values began to fluctuate, creating a market where profits could be made by trading the different currencies.
Like in the stock market buying and selling company stocks, the idea is to buy low and sell high. But instead of investing in the value of a product or business, it's investing in the value of one country against another. If a country is doing well, its currency value will be high. If it isn't, currency value falls.
Because currency prices can only fluctuate relative to another currency, they are traded in pairs, buying one currency and selling another. For example, a common currency pair is the EUR/USD, or the price of US dollars quoted in euros. If you think the USD will rise against the value of the EUR, then you would sell your EUR and buy USD. If you're correct, you make a profit depending on how much the value rose and how much you invested. If you're wrong, you lose. It is a zero sum game.
What makes the foreign exchange market unique is its extreme liquidity, its huge trading volumes, the ability to trade 24 hours a day (except UTC Sunday), the variety of factors that affect exchange rates and the use of leverage. The margins of profits are low compared to other markets, but profits can be high due to the large volumes of trade.
Most of the foreign exchange market is dominated by the inter-bank market, consisting of the largest investment banking firms. Some of the trading is done for the banking customers but most trading is for the banks' own accounts. Until the rise of the internet, there was little opportunity for individuals to participate in this profitable market. Now, increasing numbers of people are able to use their home computers to trade using an online brokerage account.
Most brokerage firms offer demo accounts where customers can trade dummy, or fake, money under actual market conditions so that you can start to get first-hand experience right away without risk. Once you feel confident, you can set up a mini account for a small investment of as little as $10 to further test your trading skills
Another resource useful for new traders is forex algorithmic software or a robot forex trading system which will monitor and analyze real time market data 24 hours a day and execute trades for you automatically. The automated systems help you see profits quickly as well as speed your learning as you watch it analyze and trade throughout all market conditions.
Because it takes little knowledge of foreign currency trading knowledge to make and sustain a profitable campaign using one of these trading systems, it is recommended for beginners. It is also useful for experienced traders to help monitor and manage numerous campaigns.
There are a number of different terms used for the currency trading market, most commonly referred to as the foreign exchange market or forex, sometimes shorted further to fx. They all describe the international market which is found in the financial centers all over the world where currencies are sold and traded. It is one of the largest financial markets in the world with the daily volume of trades in the trillions of dollars.
Foreign exchange trading began in the 1970s when the gold standard ceased to be used. Before then, every currency in world trade had a set value against the US dollar. With the abandonment of the gold standard, currency values began to fluctuate, creating a market where profits could be made by trading the different currencies.
Like in the stock market buying and selling company stocks, the idea is to buy low and sell high. But instead of investing in the value of a product or business, it's investing in the value of one country against another. If a country is doing well, its currency value will be high. If it isn't, currency value falls.
Because currency prices can only fluctuate relative to another currency, they are traded in pairs, buying one currency and selling another. For example, a common currency pair is the EUR/USD, or the price of US dollars quoted in euros. If you think the USD will rise against the value of the EUR, then you would sell your EUR and buy USD. If you're correct, you make a profit depending on how much the value rose and how much you invested. If you're wrong, you lose. It is a zero sum game.
What makes the foreign exchange market unique is its extreme liquidity, its huge trading volumes, the ability to trade 24 hours a day (except UTC Sunday), the variety of factors that affect exchange rates and the use of leverage. The margins of profits are low compared to other markets, but profits can be high due to the large volumes of trade.
Most of the foreign exchange market is dominated by the inter-bank market, consisting of the largest investment banking firms. Some of the trading is done for the banking customers but most trading is for the banks' own accounts. Until the rise of the internet, there was little opportunity for individuals to participate in this profitable market. Now, increasing numbers of people are able to use their home computers to trade using an online brokerage account.
Most brokerage firms offer demo accounts where customers can trade dummy, or fake, money under actual market conditions so that you can start to get first-hand experience right away without risk. Once you feel confident, you can set up a mini account for a small investment of as little as $10 to further test your trading skills
Another resource useful for new traders is forex algorithmic software or a robot forex trading system which will monitor and analyze real time market data 24 hours a day and execute trades for you automatically. The automated systems help you see profits quickly as well as speed your learning as you watch it analyze and trade throughout all market conditions.
Because it takes little knowledge of foreign currency trading knowledge to make and sustain a profitable campaign using one of these trading systems, it is recommended for beginners. It is also useful for experienced traders to help monitor and manage numerous campaigns.
Forex Trading: Where to Begin in Foreign Currency Trading
You've been reading and hearing about forex, or foreign currency trading and the riches the hype promises. If you're looking to make a million dollars tonight in your sleep with no effort or risk, you've come to the wrong place. But if you make the commitment and put in the effort to do it right and learn about the business, you can be a successful trader.
Forex trading is not something to be taken lightly, this market is volatile and risky. It is estimated that 90-95% of traders lose their investments in this market, most of them due to a failure to prepare. You don't want to be one of them. You can be one the 5% of winners by doing your homework and getting well educated before you leap. Fortunately, there are tools available to help you do that.
Where do you start?
1. Choose a legitimate foreign exchange company. Forex scams are everywhere, in fact it's the biggest financial con going - phony companies with attractive, professional-looking websites and promises of high returns and low risk. Investigate carefully and don't fall victim to promises of instant, easy wealth and high-pressure sales tactics designed to part you quickly from your hard-earned cash.
There are many good, legitimate companies around. Take the time to find the right one for you. Find a reputable company that is well established that you know will still be there tomorrow. Make sure it handles the currencies you are interested in now and any others you may wish to trade in later.
2. Join a forex internet forum or two. Some of the best traders can be found on these forums so go where the seasoned traders are and listen. Ask for advice on brokers, trading systems, strategies and currencies. Find out from those who know what has worked and what hasn't. There is a vast resource of knowledge there for the asking and there is simply no substitute for experience.
3. Many trading firms allow "demo" accounts where you can play with fake money in actual market conditions. This is a terrific way to get your feet a little damp with no risk. This is a "must do" step to prepare you for the market as well as discover if foreign currency trading is right for you at all.
4. After you've spent time with your demo account and you feel ready to invest some money, start with a "mini" account that you can open with as little as $250 or less. This will minimize your risk while you continue to learn. Only risk money that you are prepared to lose.
5. There are many websites offering real-time foreign exchange news and other necessary information. You will need to follow the news on the current economies of the countries whose currencies you trade to help you predict if those currencies are likely to fall or gain. Follow the non-economic news as well since politics and social issues may also affect the value of a currency.
6. Research forex "robots", software that works with algorithms designed by professional traders to continuously monitor the market and act automatically. It allows experienced traders to increase their number of profitable campaigns to increase income tremendously. It is also ideal for trading beginners to quickly learn to trade effectively and make some profits early on, taking much of the fear out of trading.
Forex trading can be a very profitable way to make a living or generate extra income if you make that commitment to learn before you leap, invest in the tools you need and continue to learn as you mature as a trader.
Forex trading is not something to be taken lightly, this market is volatile and risky. It is estimated that 90-95% of traders lose their investments in this market, most of them due to a failure to prepare. You don't want to be one of them. You can be one the 5% of winners by doing your homework and getting well educated before you leap. Fortunately, there are tools available to help you do that.
Where do you start?
1. Choose a legitimate foreign exchange company. Forex scams are everywhere, in fact it's the biggest financial con going - phony companies with attractive, professional-looking websites and promises of high returns and low risk. Investigate carefully and don't fall victim to promises of instant, easy wealth and high-pressure sales tactics designed to part you quickly from your hard-earned cash.
There are many good, legitimate companies around. Take the time to find the right one for you. Find a reputable company that is well established that you know will still be there tomorrow. Make sure it handles the currencies you are interested in now and any others you may wish to trade in later.
2. Join a forex internet forum or two. Some of the best traders can be found on these forums so go where the seasoned traders are and listen. Ask for advice on brokers, trading systems, strategies and currencies. Find out from those who know what has worked and what hasn't. There is a vast resource of knowledge there for the asking and there is simply no substitute for experience.
3. Many trading firms allow "demo" accounts where you can play with fake money in actual market conditions. This is a terrific way to get your feet a little damp with no risk. This is a "must do" step to prepare you for the market as well as discover if foreign currency trading is right for you at all.
4. After you've spent time with your demo account and you feel ready to invest some money, start with a "mini" account that you can open with as little as $250 or less. This will minimize your risk while you continue to learn. Only risk money that you are prepared to lose.
5. There are many websites offering real-time foreign exchange news and other necessary information. You will need to follow the news on the current economies of the countries whose currencies you trade to help you predict if those currencies are likely to fall or gain. Follow the non-economic news as well since politics and social issues may also affect the value of a currency.
6. Research forex "robots", software that works with algorithms designed by professional traders to continuously monitor the market and act automatically. It allows experienced traders to increase their number of profitable campaigns to increase income tremendously. It is also ideal for trading beginners to quickly learn to trade effectively and make some profits early on, taking much of the fear out of trading.
Forex trading can be a very profitable way to make a living or generate extra income if you make that commitment to learn before you leap, invest in the tools you need and continue to learn as you mature as a trader.
Choosing the Forex Trading Robot That Will Make You Money
For the foreign currency trader, there are many good, valid reasons for adding a forex automated trading system to the tool kit and few reasons not to.
An estimated 30% of professional traders are now using them to monitor the markets 24 hours a day and automatically execute the trades they would otherwise miss. They are managing more campaigns more efficiently and more profitably while minimizing their losses. In short, they are making more money.
New traders are learning how to trade effectively more quickly and seeing profits earlier with forex trading systems. They are entering their first trades with confidence knowing that their system is proven and can be trusted when followed long-term with discipline. Less likely to fail than the 90% of beginning traders who enter the market without this tool, they are more likely to reap the benefits of foreign currency trading for years to come for the financial security of their families.
There are many forex “robots” on the market today and they are not the same software in different packaging. Choosing the right one will take some research and testing but it's well worth the time and effort. Here are the minimum requirements of an automated forex trading system:
1. The system must be easy to use and understand. Any program that isn't intuitive and easy for the trader isn't of much use.
2. It must be tested in simulation tests and shown to produce a high winning-losing ratio for trading signals.
3. It must generate signals that return large profits at small risk at least during simulated tests.
A good place to begin your research is in internet forex forums where you can directly ask those who have used the systems for their reviews and opinions. Most will be all too happy to share their experiences, good and bad.
There are also review and rating sites that might be of some help, but do keep in mind that they might be highly rating a particular product for the high commission it offers for selling it. It is a good way to get a quick overview of multiple products to look into further, however. Eliminate any from consideration that don't offer a money-back guarantee – if they don't offer a guarantee it indicates that even they don't trust their own system. Why would you?
Of course, you do not want to accept the advertised claims for any forex robot – you need to test it for yourself proving every claim before live trading the system with your investment capital. You will do this with a demo account you can sign up for at most foreign currency brokerage firms.
Sign up for a demo account at a firm that allows forex robots, set the robot up and let it trade for you in the dummy account for a few weeks to evaluate its performance. Does it accomplish all three goals above? Was it easy to use, producing high win-lose ratios and generating large profits at small risk?
If it didn't meet those goals or the advertised claims, return it for your money back or at least don't buy the entire package. Try again until you find the right automated system for your trading style.
The forex robot will be your best employee. Hire wisely!
An estimated 30% of professional traders are now using them to monitor the markets 24 hours a day and automatically execute the trades they would otherwise miss. They are managing more campaigns more efficiently and more profitably while minimizing their losses. In short, they are making more money.
New traders are learning how to trade effectively more quickly and seeing profits earlier with forex trading systems. They are entering their first trades with confidence knowing that their system is proven and can be trusted when followed long-term with discipline. Less likely to fail than the 90% of beginning traders who enter the market without this tool, they are more likely to reap the benefits of foreign currency trading for years to come for the financial security of their families.
There are many forex “robots” on the market today and they are not the same software in different packaging. Choosing the right one will take some research and testing but it's well worth the time and effort. Here are the minimum requirements of an automated forex trading system:
1. The system must be easy to use and understand. Any program that isn't intuitive and easy for the trader isn't of much use.
2. It must be tested in simulation tests and shown to produce a high winning-losing ratio for trading signals.
3. It must generate signals that return large profits at small risk at least during simulated tests.
A good place to begin your research is in internet forex forums where you can directly ask those who have used the systems for their reviews and opinions. Most will be all too happy to share their experiences, good and bad.
There are also review and rating sites that might be of some help, but do keep in mind that they might be highly rating a particular product for the high commission it offers for selling it. It is a good way to get a quick overview of multiple products to look into further, however. Eliminate any from consideration that don't offer a money-back guarantee – if they don't offer a guarantee it indicates that even they don't trust their own system. Why would you?
Of course, you do not want to accept the advertised claims for any forex robot – you need to test it for yourself proving every claim before live trading the system with your investment capital. You will do this with a demo account you can sign up for at most foreign currency brokerage firms.
Sign up for a demo account at a firm that allows forex robots, set the robot up and let it trade for you in the dummy account for a few weeks to evaluate its performance. Does it accomplish all three goals above? Was it easy to use, producing high win-lose ratios and generating large profits at small risk?
If it didn't meet those goals or the advertised claims, return it for your money back or at least don't buy the entire package. Try again until you find the right automated system for your trading style.
The forex robot will be your best employee. Hire wisely!
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