Do you think you are ready to join the currency markets? How exactly can an average joe trade forex? Welcome to the world of online forex trading. Let us discuss the steps you need to follow in order to enter the currency markets.
- Choose a Broker: You cannot trade forex online unless you open an account with a forex broker. Your forex broker is the one who facilitates your trades and executes your buy and sell transactions. There are many forex brokers in the market who let you open an account for as less as $100.Most brokerages that sound too good to be true are often scams. Thus, it is important that you choose only a regulated trading firm. Also, carefully analyse other criteria like the type of accounts a FX firm offers, trading costs and commissions, amount of leverage, spreads, the trading platforms they offer, their market reputation, terms and conditions etc. before finalizing a brokerage.
- Open a Demo Trading Account: Once you have settled for a brokerage it is a good idea to initially open a demo account with them for trial and testing purposes. In this way you can evaluate your broker's platform and its features, discover and work upon a suitable trading style e.g. day trading, scalping or swing trading and even your approach (whether technical or fundamental) in a simulated setting before risking any real money. Nowadays, most brokerages offer free demo accounts for 30 days or even an unlimited period. Alternatively, you can open several demo accounts with various brokers in order to be able to decide which one best suits your needs.
- Switch to a Live Account: Once you think you are all set to make the switch to a live account you need to fill the live account opening form with your respective brokerage. Before doing this you should know that the spreads each brokerage offers vary. While they will often vary by merely a few pips (0.0001), this can make a considerable difference as you trade more and more over time.
- Your broker will ask you to furnish certain details like your name, address, date of birth, country of citizenship, social security number or Tax ID, annual income, net worth etc. in compliance with the law. During the last few steps of opening your account, you will come across risk disclosures. It is essentially a declaration that forex can be a risky proposition. Once you've submitted all the required information the broker will verify it and process your application. As soon as your information is authenticated, you can start funding your account and you are ready to go live.
- Start Trading: Once you know about the things to be aware of when opening a forex account, you can start trading. The two common methods to trade is either through simple buying and selling of assets/securities, where you go long one currency and short another. Another way is through derivatives like futures trades and options.Both of these trading techniques are usually only used by more experienced investors.
- Concluding Summary: While starting out to trade forex new traders should avoid putting any money in their account that they cannot afford to lose and incur needless risk. It is best to start with a reasonable sum of money and trade small. Nothing in particular can truly prepare you for the emotions that you feel when your money is at stake, so take measured steps in the beginning.