How to Begin Trading Foreign Currency

I’ll assume that you have some knowledge about Forex  either from a book or website. I’m not going to give definitions of a pip or  explain what a base currency is. There are plenty of places you can find this  information. What I want to provide are practical lessons for the beginner,  lessons that can help straighten the learning curve. There’s a lot of  information out there on forex, some of it good and some of it misleadingly bad.

Be careful. Trading forex is many times portrayed as a way to get rich  fast; a home-based business. This is the furthest than from the truth. Trading  forex is risky and though it may be possible to turn it into a home-based  business, you need a lot of capital and experience. To give you an idea, a very  experienced and respected currency trader had the following yearly returns: 71%  in 2004, 433% in 2005, 53% in 2006, and 30% in 2007. Let’s just say for a minute  that you were as successful as this trader and started 2007 trading forex as a  home-based business with $5000. Could you live on the $1500 you made in 2007? I  doubt it.

I’m not trying to discourage you from trying but I think it’s  important to be realistic. If you dive into currency trading with unrealistic  expectations, you’re not going to get far. Maybe you’ve read a book on forex,  read something about trading forex on the internet or you went to a trading  seminar. This is something that interests you, something you want to commit time  to, initially as a hobby and maybe one day for a living. After you have this  basic knowledge, where do you begin?

I’d recommend buying a book on  forex because it contains a little of everything. It explains what the forex  market is and answers other basic questions. In addition it should contain  information on reading charts and technical analysis. Read the book from cover  to cover. When you’re done, move on to step 2. Download and install Metatrader  which is a free trading and charting platform. You will prompted to open a demo  account after installation. You can download Metatrader from any number of  places. One such place is http://www.interbankfx.com. Start playing around with  Metatrader to learn what capabilities it has. You’re not going to find a  Metatrader book in your bookstore but you will find online manuals on the  internet.

There is also a huge user community around Metatrader. You can  find any one of these communities by googling “metatrader forums.” Start  applying some of the things you learned from the technical analysis sections of  the book to your charts. Draw some trendlines or add some indicators. Start  placing some trades also. Don’t be concerned about how much you’re risking or  whether you’re going to win or lose. Just get a familiarity with how to place a  trade.

There’s only two directions you can trade in, long (buy) or short  (sell) but there are many currency pairs. Try concentrating just for consistency  on the EUR/USD, GBP/USD, USD/CHF, or the USD/JPY (the four most popular currency  pairs.) These three steps should keep you busy for quite some time. Take some  time to get familiar with it all then you can move  on.