Foreign Currency or as is called, Forex trading is where you trade the value of one currency pair against the value of another. Let’s use the Great British Pound (GBP) vs. US Dollar (USD) as an example. I’ll use a trading amount of $1000. If your analysis revealed to you that the Pound was going to increase in value compared to the Dollar, you could use all that $1000 to buy Pounds. When the value of the Pound increases in value by say 5% and you are happy with that profit level, you can sell for a profit of $50.
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It may seem risky to use all of that $1000 on one trade. And you would be right. The Forex market has a leveraging system where you can use smaller investment amounts to control large amounts of money. It is the use of Stop Loss and Take Profit setups in trade that when used with good risk management, one can limit one’s loss exposure. Hence, it is possible to make a lot of money over time using a small investment.
I have oversimplified the process just to make a point. The same principle applies to trading stocks. The object is to buy low and sell high. If it was that easy to predict the direction of the market. Everyone would be trading. But it is not.
Although you can use all kinds of analysis and chart patterns to help use past history to give some idea of future direction, nobody can be absolutely certain what the outcome will be. If comes down to how good one is in analyzing the markets and using sound principles to make trades.
Why should you consider trading Forex? Here are some reasons:
- The Forex Market is open for trading 24/7 except for weekends when it is closed for 48 hours.
- It is by far the largest market open to trading hence there is no liquidity issues.
- Most trading companies will give you a free demo account to do paper trading before you dive in with real money
- One lot size is equivalent to about $10 a pip. Though one can trade using micro lots, meaning as low as 10 cents a pip.
- The amount risked is limited and is defined by where the stop loss level is placed. If the lot size used is a micro lot equivalent to 0.0 (10 cents a pip) and the stop loss is set at 100 pips, the most you could lose if the trade goes against you is $10. Hence, you can control one’s risk. Risk management is the most important skill of any form of trading.
How To Trade Forex
1) Do It Yourself
It is paramount that you learn as much as you can about the technicalities of trading as well as the personalities of the various currency pairs. Many Forex trading companies will allow you to open a demo account for free to practice first before you make a deposit to open a cash account.
Even after you open a cash account, it is advisable to continue one’s demo trading and gradually start to use real money in very small increments.
2) Done For You
In this scenario you join a trading company for a monthly fee to have access to trade recommendations made by experts. You will get details of trades to make typically one or two a day. These details will provide you with all the information to execute a trade with your Forex brokerage company. You will be told the currency pair, what stop loss to place and what take profit to set. The amount you use will depend on your trading capital and what you can afford to lose.
Even when you go this route it is still prudent at first to make these trades using a demo account. Once you feel confident that you are making a profit on average, then start with real money. But start with micro lots. Then move to mini lots.
The most you should ever risk on one trade is 2%. So for example, if your capital was $10,000, 2% would be $200. Hence, you would be eligible to make trades where you risk no more than $200 per trade. Meaning you can place a single trade using 2 lot sizes and set a stop loss no more than 20 pips. If the trade required a larger stop loss then the lot size would have to be reduced.
Ideally it is best to limit one’s loss on one trade to 1%.
There is more to risk management than how you set your stop loss. If it is clear the trade is going against you, it is OK to get out of the trade before the stop loss is reached. Conversely, if the trade is moving in your favor, you can reduce the stop loss till you eventually set it to break even. In that situation if the trade went against you there would be no money lost.
Risk management is an art and a science. Every trading company has training modules on this very important subject. If one minimizes one’s losses to small amounts, it is possible to suffer a string of small losses and come out ahead with one big profit run.
Each individual has their own style of trading. This is usually developed while demo trading.
There are so many ways to trade. It is best to try as many methods out as possible during the demo trading period. The goal is to find a system where out of 100 trades you make a profit that meets your goals. Say for example, that profit goal is 1% per trade and stays that way consistently, then you have developed a system.
So if you have only $1000 to invest per trade and on average you earn a profit of1% on every 5 trades that you can sustain for 100 trades you will earn $200, This is a 20% return on capital. However, the benefits of a successful system is it can be scaled up. If your capital was $10,000, after 100 trades your earnings using the same metric would be $2,000.
There is one major takeaway. Your success or failure is based on your own efforts. There are no guarantees. However, by following the advice of expert traders the probability of success is higher than if you went it alone.
1000 Pip Builder
This is the company that is perfect for beginners. Here is what they have to say:
Join 1000pip Builder Now by Clicking the Panel Below
You will be provided with several subscription options. Pick one that is right for you. The important goal is to start learning about Forex Trading right away so that you can learn to become successful at it to help you replace your day job.
Just imagine, trading for a couple of hours a day or night, from home instead of driving to work, fighting the traffic and working for 8 or more hours to make someone else rich.
However, by joining 1000pip Builder you have the option of using the trading signals they give you to start making a profit right away. I would still recommend that you learn to trade yourself so that you do not become dependent on others as well-meaning as they are.
For transparency, if you join 1000pip Builder as a paid member I shall receive a small commission to help support my website. The cost will be the same regardless if you went through my site or directly through them.
Selecting a Forex Broker is something that you must make a decision for yourself. You need to research Forex Brokers to find one that meets your comfort zone. However, I shall provide you with a couple of suggestions to give you a starting point.
Oanda and Forex.com are both reputable brokers. They both offer the well proven Forex Trading Platform, MT4. Click the banners below to check them out:
Click the Banner below to get to their website.
I highly recommend that you check out the world of Forex Trading if you want to create a means to add extra money to your life every week. This is a fantastic alternative. You can start with a demo account and do paper trading. As you demonstrate to yourself that you can make consistent profits either with you trading or using the trades recommended 1000pips Builder, you will be entering a new world of financial freedom.
The beauty of this journey is you start with paper money. Then graduate to small cash accounts. Once you prove t yourself that you can come out ahead every month, move up to even larger cash accounts to trade. If you have any questions please leave them in the comments section below.
I wish you much success in your Forex trading activities.