How to start trading forex

In this article, you will learn how to get started in Forex trading. Here you can learn how to choose a broker, set up a trading account, fund the trading account, how to use the funds, and other useful things when starting to trade Forex.

Having a regulated broker

When learning how to trade Forex, the first step is to have a secure trading environment. Protecting your investment in the stock market starts with choosing the right broker!

Trading in the financial markets is a regulated activity in most countries around the world and it is certainly a regulated activity in the world's financial centers such as the UK, USA, EU, Japan, Australia, Canada, and a few others. Regulated activity means that there is appropriate legislation and dedicated governmental or semi-governmental institutions that license and regulate financial brokers. These institutions will be your recourse if you ever have a dispute with your online broker.

If the broker has no license, you are protected only by the terms of the contract they offer, which is often random.

The online brokerage world is unfortunately full of unscrupulous people and for the same company name, there can sometimes be several companies. When opening a trading account, make sure that you are working with a regulated broker who is licensed, unless the opposite is your goal.

Otherwise, there are many trading account providers to choose from. Each one can match you to some unique criteria.

Brokers according to their performance

After selecting a broker, it's important to understand which order execution model the broker uses. A market maker, as opposed to a simple access provider, is a type of broker that creates a market for its clients by displaying actual price quotes but does not place orders in the interbank market. In this case, the broker is the client's counterparty: he wins when the client loses and he loses when the client wins. As your broker represents the market, he is the market maker.

No Dealing Desk brokers are also called ECN brokers and they simply work as access providers for their clients in the interbank market. This type of account allows for more market depth, have floating spreads, and longer order execution time. When an order is placed in an ECN account, the ECN broker processes it and forwards it to the market. This way, instead of trading with your broker, you trade with one of the millions of traders present in the interbank market.

For many traders, a market maker broker is not a good thing and they prefer to work with an ECN broker. But is a Dealing Desk broker a bad thing?

A short answer - if the broker has a license issued by a serious financial authority, like the FCA in the UK or the AMF in France - you can trust your broker. You can be sure that the broker does not manipulate prices or charts. Also, you can trust that the funds are in segregated accounts and that you will be protected if your broker goes bankrupt.

Another thing that is very interesting in trading is the speed of order execution. When the broker is a Dealing Desk broker, the order is sent to the broker and the execution takes place immediately. So, if the speed of order execution is essential to your trading strategy, having a Dealing Desk broker may be an alternative to consider.

The Forex Trading Account

Now that you have chosen a broker, we come to step two: choosing and opening your online trading account.

A trading account is similar to your current account, with one important difference - you can use the funds in your trading account to profit from the financial market. In this example, you can use funds to start trading Forex online.

Trading accounts come in a wide variety and most forex brokers offer several types of accounts at the same time.

The things to watch out for depending on your trading strategy and trading plan. Account types vary in their minimum deposit, the leverage offered financial instruments available, and other trading specifics.

Micro accounts allow you to trade with as little as 10 Euros using very small volumes, such as 0.01 or a micro-lot. This type of account sometimes allows leverage of up to 1:1000, which allows the trader to make very large gains or losses. The list of financial instruments on these accounts is usually limited to 20-30 of the most popular currency pairs.

Brokers also offer a "standard" account. This type of account allows you to start trading on Forex and CFDs, metals, futures. In other words, the majority of instruments available with the broker will be available on the standard account. The initial deposit on this account is likely to be a bit larger, starting from $100 to $200. The leverage is lower and the spreads are around 1-2 pips on the major currency pairs.

Sometimes brokers offer account types specially designed for very active traders, with lower spreads and with a higher minimum deposit, like 1000 euros and the leverage is very often lower, around 1:100 or even lower.

Sometimes brokers have VIP accounts with additional features. Deposit bonuses, no-swap, or no-spread accounts are offered to attract more affluent clients.

No matter what type of trading account you choose, make sure you understand the contracts and information related to margin trading.

Forex Leverage

If you want to learn about how to learn trading and trading-related topics on the forums, you will come across the question of whether leverage is a good or bad thing for the trader. It is important to know that the most important leverage on the types of investments is the one offered by the forex brokers. When using leverage, the line between good use and abuse is very fine.

It is important to understand how leverage works. Leverage does not change the number of points in the market, but it can change how much you will gain or lose on a trade. It all has to do with the size of the order.

It is true that with higher leverage you can trade larger order sizes. Overall, opening positions with a larger order size or opening multiple orders will result in higher margin requirements and higher pip values. Trading CFDs in excess is quite dangerous, as the trading account balance moves faster and the trading account cannot cope with the volatility of the market.

This is a textbook example of how not to trade online. If we keep the same trading account with low order sizes and good menu management and low leverage, the same negative scenario can occur. Too little leverage generates margin calls, even if the account is well-capitalized. Like the result, your account can suffer losses if the volatility is higher.

Equity in the trading account

First of all, you should never trade with funds that you cannot afford to lose. Starting Online Trading is similar to any other investment in the stock market and it is a risky business and only funds that you can afford to lose should be used. Trading with funds that one can afford to bet in the stock market helps the trader not to be stressed in his trading and allows him to approach this investment activity more calmly.

Most beginner traders are careful with their initial deposits and fund their trading accounts once they get a taste for online trading. This usually means two things: they have lost the initial deposit and they want to recoup the investment with new deposits, adopting a chit or double strategy. Sooner or later this strategy inevitably leads to disaster. In trading, excessive risk-taking pays off sooner or later.

Statistically, you have a 99% chance of losing your initial deposit if you go into trading without any trading strategy and any training in online trading. Not all orders are winners and the experience of taking losses is also a learning experience.

Loss is the price to pay for learning if you are motivated to spend the time to learn. The market is not your enemy. Your broker is not your enemy either. The most important thing in your trading is yourself!

The real question is: What have you learned from making a costly trading mistake and are you prepared to never repeat it? As simple as that.