What is Forex?
Forex stands for Foreign Exchange or currency market and is sometimes depicted as FX; a global decentralised currency trading market. Most currencies in the world are tradeable in the form of buying, selling and exchanging currencies at determined prices.
Because of its global nature, the volume of trading is large and is by far the largest market in the world.
Whether we know it or not, currency is the means of exchanging goods and services and so the foreign exchange market becomes the virtual place to exchange that money in order to conduct foreign business or trade. For example, when you go on holidays to a different country, you have to have the local currency that is in use, otherwise you will not be able to pay for your meals, transport, hotel and other goods and service you need while out there. At a larger scale, countries exchange their currencies in order to pay for imports and various services.
As the world is becoming smaller and we travel or buy foreign goods at a press of a button, the need to exchange currencies has become so important. It has therefore made the Forex market the largest, most liquid and 24-hour financial market in the world. By size, the average amount traded each day is in the region of $3 Trillion USD, which literally dwarfs other markets such as equity and indices.
Due to its global nature, the Forex market trades 24 hours a day, covering all the major time zones in the world: from Asia session, European session to US session and the cycle starts again with Asia. This is what makes the currency market the most liquid, popular and most traded.
Who Are Involved in Forex Trading and How?
Individuals, institutions such as banks and corporations trade the currency market. This market in classified into Spot, Forward and Futures markets.
Very often you read about Forex market which is almost always synonymous with Spot market and has become the largest market for individual investors or traders. As the purpose of this blog is on individual rather than corporations and institutions, the focus will be on the Spot Forex market.
Over the last decade, there has been a surge in activity for day traders whose interest is mainly in the spot market. This type of market is where currencies are bought and sold based on the current price, which in turn is determined by a number of variables such as supply and demand, economic news and outlook, interest rates and political considerations.
How to make money from Forex trading
I started trading 10 years ago, initially in stock indices and then moved to Forex. Despite years of training, I was forever feeding the Brokers and clearing my account. The reason was not because I didn’t have the skills, instead it was because I lacked the discipline and the right psychological mindset to carry me through. It took me a long time to learn how to make money from trading Forex and stop enriching the Brokers.
This website is geared towards generating multiple income streams ideas and this post will focus on how to make extra income working from home or anywhere with Forex trading.
I am not going to glamorise trading here. Forex training can make you a lot of money or lose you a lot as well. To become successful and actually start earning money from Forex, you must build a foundation, which comprise but not limited to:
- Leaning the basics through courses, tutorials and membership of a reputable ‘Live Trading Room’
- Understanding the risks associated with trading and the benefits
- Conducting disciplined due diligence
- Finding the right trading platform and set up an account
- Obtaining a charting software
- Joining trading community or forums
- Knowing the Forex trading pitfalls to avoid; and
- Beware Forex trading scams or online scams
Your success as a Forex Trader: Knowledge and Skills
To create a successful online income stream from Forex requires meticulous planning and preparation. This is not one of those get rich quick schemes, unless you are looking for scams, which will be covered later.
I didn’t coin the phrase knowledge is power, however on this occasion, knowledge is not enough. Becoming a successful training demands skills; lots of it. There are of course many ways you can avoid losing money like I did at the beginning while you are sharpening your skills. We will discuss this under trading platforms and setting up accounts.
There are several organisations that provide online trading courses and tutorials that will actually walk you through various stages. If you are serious about trading, get the right training from reputable companies and not those that promise you quick money. Back in the day when I began my trading journey, I joined the first thing I saw. I was attracted and magnetised by the pictures of financial freedom I could have; sitting by the beach with my laptop, sipping endless cocktails and making obscene amounts of money. Young and impressionable, I jumped in, seeking the luxurious life-style devoid of reality. Needless to tell you that it didn’t materialise and I didn’t learn a lot!
Over the years I have found and used two very reputable companies for all my Forex trading needs; Ezeetrader and Forexmentor. Although these are my favourites, and believe me I have used loads, you can also do your due diligence to decipher a learning source that works for you.
There are of course thousands of books published on the subject. I can recommend dozens but it’s always good to start small to avoid overwhelm.
Risks and Benefits of Forex Trading
It’s essential to point out the potential and real risks of currency trading as well as the benefits.
The first one has already been taken care of; knowledge and skills. Without adequate knowledge and education, you will be throwing your money away because Forex is a fast moving market. Many brokers are offering education opportunities in the form of seminars and webinars/online tutorials. There are also many eBooks and free videos available. However, if you are serious about Forex trading, learn from the best. You will get good return on your investment.
With 24 hours of trading opportunity, the Forex market is flexible enough to suit your lifestyle and other commitments. Therefore it will allow you the opportunity of building a passive income whilst pursing other business interests.
Forex trading is very exciting, however, an important point to note is that with its high leverage and low margins come either huge gains or huge losses. The market is very liquid and often sees sharp moves, especially with important economic and political news announcements.
The first lesson to learn in Forex trading is to only trade with the money you are willing to lose. With proper education, risk and money management skills are primary because this is where novices get burned before they can spell the word FOREX. You learn to protect your capital and manage your trades well.
Conducting due diligence
Many new or novice traders are seduced by the promise of a good life and escape from hard work and struggle. Although I’ve always liked trading through investments, I was originally seduced by the great promise.
It is essential to do your due diligence. There are many sharks out there, which will be discussed below under trading scams. Many companies advertise their courses but one important lesson I learned after making many mistakes was to take a course from someone who is actually a renowned successful trader. Anybody can stand up and regurgitate theory and some have complex marketing strategies to lure the unsuspecting “victim.”
Trading Platform and setting up an Account
To be a successful currency trader, you need a cooperative and reliable broker. Read independent customer reviews about them.
There are a number of important things to consider as you make your decision:
- Do they offer a demo account that does not expire? This is important for beginners because it’s always important to start with a demo account, giving you the ability to practise trading until you are ready to upgrade to a live account
- Offers educational tools and resources to beginners
- What kind of spreads do the broker offer? Do not be fooled by small spreads alone. Some brokers use it to lure customer in but take time to read the small print. For example, how efficient do they execute the trades especially during volatile trading conditions?
- Does the broker offer ‘free’ and reliable charting services?
Here are a few brokers to explore:
Name: ETX Capital
It’s one of the largest brokers in the industry that has been involved in the financial markets since 2002. The company is listed in the London Stock Exchange. Voted one of the most trusted and secure platforms in 2016. They run a comprehensive suite of educational webinars and seminars.
Practice Account: $10,000
Minimum Deposit: $100
IBKR has been around since 1977. They offer a glossary, webinars, live or recorded, discussion forums that are not monitored, to network with other traders, apps, widgets, cheat sheets, and user guides.
Practice Account: After trading account has been approved and funded
Fortex Capital Marketing have been in operation since 1999. They offer a library of trading and instrument guides, daily platform walk-throughs and strategy sessions, and how to read quotes and place trades. It was the first forex broker to list on the New York Stock Exchange
Practice Account: $50,000
Minimum Deposit: $2,000
Name: TradeStation Group
TradeStation has been around since 1991. Here you start with TradeStation Basics that introduce you to their platform and basic trading guide. They also offer TradeStation University and Events (which have free and paid for options) and quick tips.
Practice Account: $25,000-$200,000 option for Simulated Account
Minimum Deposit: $2,000
Joining Trading Community or Forums
Trading as an individual can be a lonely occupation and the most consistently profitable day traders tend to belong to a fee-paying trading community and/or regulated forums.
Aside from interacting and networking with other like-minded traders, you have the opportunity to continue with your professional development. I have personally had and continue to have experience of two reputable ‘Live Trading Rooms’: Ezeetrader and Forexmentor. Other benefits include discounted trading strategies and mentoring from longstanding experienced traders.
There are of course other reputable ‘rooms’. Again do your due diligence to find the one that resonates best with you.
One of the trading forums I visit from time to time and have learned a lot from, is ForexFactory. It’s worth exploring.
Beware Forex trading scams or online scams
Trading can be addictive and especially when you are on a winning streak. It can also bring about the worst of human greed. This is where some people throw caution and discipline to the wind and go for the ‘kill’ only to find they’ve overleveraged, become aggressive and overconfident and guess the rest…
This is when some traders allow themselves to catch a falling knife. Here are a number of suggestions to keep you safer and help you to succeed.
Brokers ideally should have similar point (pip) spreads for each currency pair, e.g. JPY/USD. The more the pip difference per currency pair, the more you have reason to beware. Remember that the larger the spread, the worse off you become and the wealthier your broker. Be sure that your broker is regulated. The person or company you are dealing with must have information about them available.
They claim to be the ‘mother’ of all signal services and can therefore provide you with the best recommendations on which trades to take, in order to make a mint. They peddle their huge experience and capabilities in trading and of course they charge well for their services. There could be some occasional success with this service but beware, there’s no magic wand in trading.
Ponzi Forex Trading Systems
These are closely related to selling signals but here you are offered automated trading system that will quadruple your investment in no time. This is not to say that there aren’t automated systems on the market. Research carefully to ensure that these systems are robust rather than ending up with a gambling Ponzi scheme.
Dishonest Trading Platform
Does your broker allow you to easily withdraw your money from your investor’s account? How about during high volatility periods like economic news – can you enter or exit trades easily or are you held in a trade until all your credits disappear? Do your research and be sceptical about promises until you experience high performance.
In Forex market, no one can guarantee you profits or high performance. Any system or individuals promising you 30%+ returns on your investment should be viewed with scepticism. If an offer sounds too good to be true in this market, it usually is.
Forex is definitely a very exciting market to participate in. To succeed, research and check well before you leap.
Do you have any experiences you wish to share, good or bad? I’d love to hear from you. Thank you for visiting the site.