Hello traders! In this article we will discuss a few of the “why’s” to trade, and a few how’s to get started.
So, why trade in the Forex market? First on the list is the leverage that is available to us. Leverage is merely the ability to control a lot of something using just a little. For example, if I wish to trade a standard lot in the EUR/USD currency pair, I need to have approximately $2,800 in my account to open this position. As of the time of this writing, that means I would be buying 100,000 Euros, and at the same time selling 136,500 US dollars (when entering a long position.) This works out to be about a 50:1 leverage trade. In the spot forex, often we are allowed 50:1, and sometimes 20:1 depending on the currency pair. For United States based accounts, this is a standard requirement. Not that long ago, we routinely were able to get 100, 200, or even 400 to 1 leverage! While leverage is a great thing when you are making money, it can be a disaster if you are not a successful trader. Leverage certainly cuts both ways. You can make a lot of money with just a little in your account, but you can also lose your entire account if you over-leverage your account size and your skill level! During our Online Trading Academy classes, I often recommend new traders to not leverage more than 5 or even 10 to 1 until they have a proven track record of success.
Another great reason to trade in the forex market is the hours the market is open. The market opens at 5pm EST on Sunday, and doesn’t close until 5pm on Friday. What this really means is that you can trade when your schedule allows, instead of having to adjust your life to when the market is open! The US stock market opens at 9:30am EST and closes at 4pm; if you want to be a day trader in the stock market, your schedule must fit the stock market. In forex, you can trade at 2am, 7am, 10pm, or whenever your schedule allows! Another terrific benefit of these market hours is that you will rarely have to worry about gaps. Stocks have gaps every day, sometimes just a penny or two, sometimes many dollars. If bad news comes out at 7pm about a stock that you are long, you won’t be able to exit that trade until the next morning, sometimes many dollars worse than you would like. Since the only gaps we have caused by the markets being closed are over the weekend, we can certainly minimize this risk by perhaps exiting trades on Friday and perhaps re-entering Sunday night. (Yes, occasionally a news event during the week will cause the market to gap during the day, but the vast majority of these events can be found on an economic calendar. Which would help with minimizing that risk as well.)
The third reason to trade the forex market that we will discuss this week is the fact that you can start with a very small account. Many brokers will open accounts for as little as a couple hundred dollars. Now, you can’t make a living on a $200 account, but you can certainly learn how to trade with that much! After a few weeks or months of successfully trading a small account, you can certainly add money to the account and start earning some real money. By opening with a small amount to start, your losses should be just a handful of dollars at a time-learning to trade cheaply, if you will. Risking $5 on a trade is much cheaper than risking $500!
Our next topic is how to get started. Obviously, you need an account to get started. Online Trading Academy has partnered with some of the larger brokerage firms out there, plus as a student you get your tuition rebated over time! Your main concerns with your brokerage firms are ease of use of the platform, good order execution, and financial stability of the firm itself. Your best resource to find out about the ease of use is yourself – download the platform and give it a test run! Most demo accounts can be set up in a matter of minutes. If you don’t like how the demo platform works, move on to the next broker. The best resource for finding out about good order execution is your own live trades being filled, and also other traders’ experience. Just checking out online anonymous forums isn’t good enough. My recommendation is to ask other students in our Extended Learning Track live classrooms to find out how they like their fills. If they are happy with their broker, they will be happy to fill you in!
The financial stability part is a bit harder. You can go to the cftc.gov website and check the “Financial Data for FCMs” page and see how their financials have been trending over the last several months. If your brokerage company is traded on a stock exchange, you can also check their public financials and stock price. If their stock is trend up, trades at a reasonable price with healthy volume, that would be another feather in their cap.
The last thing you need to get started is trading education. Just for fun, I put in a Google search, “how to trade the forex market,” and received over 62 million results. By the time you have waded through .1% of them, hopefully you still have money left to trade! The vast majority of those results will be mere regurgitation of the same old tired technical analysis tools that are usually late, and also offer no competitive edge. In our classes, we take a different approach, showing you how to identify where the institutions are probably trading; we just try to follow those huge elephant traders through the forest! It is much easier than you might think, when you know what footprints to look for.
If you have made it this far into my newsletter, I hope you are still interested in learning to trade the spot forex market. By starting small and following a few simple rules, trading can be the best way to earn an income!
Until next time,