2 – Beware with all the “Automatic Systems” that promise to make a fortune overnight. Most of these systems don’t work, and that’s why they sell them in the first place.

3 – Before you buy any system or course, make sure you make a good research about it. There are some good products on the market but most products are a waste of time and money. Visit regularly Forex reviews websites so that you know what people are talking about each product. This will save you time and money.

4 – Beware with unregulated brokers or those that trade against their customers. Make sure you’ll be able to withdraw your money when you want to before you decide to send money to any broker.

5 – Don’t ignore your results and never blame the market for your losses. The market is always right, and if you lost money than you done something wrong, not the market.

6 – Don’t try to test multiple systems at once. Test 1 or 2 different systems at a time to avoid all the confusion that happens when you test plenty of different systems at the same time.

7 – Don’t try to trade plenty of different currencies. Each currency has a different personality, so if you try to trade 10 different currencies at once, you don’t even know how each currency trades. Try to trade 1-4 currency pairs.

• United States Dollar – Greenback
• Australian Dollar – Aussie
• New Zealand Dolar – Kiwi
• Canadian Dollar – Loonie
• Swiss Franc – Swissie
• Great Britain Pound – Sterling or Cable

You can’t expect to start trading today and make a fortune in 1 year. You need to learn how this complex market works and practice on a demo account.

You need to find what type of trader you are. You can be a day trader or a swing trader.

You need to learn good strategies and develop your owns.

Other good idea is to keep a trading diary so that you can take notes on all your trades and on the rules that made you trade a specific currency.

To make money in Forex you’ll need time and patience. Don’t try to make a fortune overnight because it won’t happen.

And remember: think on your own. Avoid all the gurus and their prophecies because in the end you’re the best person to manage your own money.

Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today’s modern currencies.

Before the First World War, most Central banks supported their currencies with convertibility to gold. Paper money could always be exchanged for gold. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government’s currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called “Run on banks ” The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability.

In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.

Near the end of WWII, The Bretton Woods agreement was reached on the initiative of the USA in July 1944. The conference held in Bretton Woods, New Hampshire rejected John Maynard Keynes suggestion for a new world reserve currency in favor of a system built on the US Dollar. International institutions such as the IMF, The World Bank and GATT were created in the same period as the emerging victors of WWII searched for a way to avoid the destabilizing monetary crises leading to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that reinstated The Gold Standard partly, fixing the USD at $35.00 per ounce of Gold and fixing the other main currencies to the dollar, initially intended to be on a permanent basis.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the 1960’s. A number of realignments held the system alive for a long time but eventually Bretton Woods collapsed in the early 1970’s following president Nixon’s suspension of the gold convertibility in August 1971. The dollar was not any longer suited as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The last few decades have seen foreign exchange trading develop into the world’s largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

In Europe, the idea of fixed exchange rates had by no means died. The European Economic Community introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when built-up economic pressures forced devaluations of a number of weak European currencies. The quest continued in Europe for currency stability with the 1991 signing of The Maastricht treaty. This was to not only fix exchange rates but also actually replace many of them with the Euro in 2002.

Today, Europe has embraced the Euro in 12 participating countries. The physical introduction of the Euro on January 1, 2002 saw the old countries currencies made obsolete on July 1, 2002.

In Asia, the lack of sustainability of fixed foreign exchange rates has gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates in particular in South America also looking very vulnerable.

While commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have discovered a new playground. The size of the FOREX market now dwarfs any other investment market.

It is estimated that more than USD 1,200 Billion are traded every day, which is the same amount as almost 40 times the daily USD volume on the American NASDAQ market.

This versatility attracts many investors to become Forex traders. The liquidity of the Foreign Exchange Market is also very attractive for the Forex investor as trades range from 1 to 1.5 trillion dollars on a daily basis. These massive amounts of trades make it extremely difficult for any one trader to affect the market.

Foreign Exchange Trading is simply the purchase and sales of currency based on the strength of the currency and the fluctuation in the value of that currency. For example, if one were to invest $1,000 against the British pound at 1.7999 with a 1% margin and anticipate the exchange rate to climb. If that occurs and you close the exchange rate at 1.8050 you would earn roughly $400. Forex is giving you a 40% return on your investment.

Forex offers the possibility of huge profits in relatively short periods of time. The stock exchange is very different in that positions are generally maintained over a longer period of time. Although there are day traders, Forex traders have much shorter hold times on positions. Similar to the stock market marginal accounts can be obtained in the Foreign Exchange Market as well.

Forex marginal accounts are very engaging as they allow Forex traders to take large positions without having to make a large deposit. In many circumstances one can fund a marginal account with .05% the necessary funds. In other words, $500 would allow a $100,000 position. In order to trade Forex effectively and profitably, one must have some type of method to follow. There are two methods used in determining what Foreign Exchange trades one should make. There are two methods, fundamental Forex analysis, and technical Forex analysis.

Technical analysis is the most commonly used practice and uses the assumption that the changes that occur in the Foreign Exchange Market happened for a reason and are accurate. The belief is that if a currency has been trading towards a high then that currency will mostly continue towards that high with the adverse being true as well. The technical Forex view does not try to make long term predictions about the market but instead simply tries to take advantage of what has already been seen in the past.

The fundamental Forex method takes into account all aspects of the country in which the currency is traded. Things such as the economy, the countries prime interest rates, war, poverty level, and other factors are taken into account. If there is a sharp rise in the prime interest rate a Forex trader may take a position based on that information.

Online Forex trading has the potential of being extremely lucrative. One can learn to trade by creating an online Forex Account and begin by using a learning account without real funds. This will help you to understand the Forex trading process and how currencies are affected by different things that are happening on a global scale.

In the past, foreign exchange trading was limited to large players such as national banks and multi-national corporations. In the 1980’s the rules were changed to allow smaller investors to participate using margin accounts. Margin accounts are the reason why FOREX trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.

A Learning Curve

FOREX is not simple, though, so you’ll need some knowledge to make wise investment decisions. Although it is relatively easy to start trading on the FOREX, there are risks involved. Your first move as a beginner should be to find out as much as possible about the forex market before risking a dime.

Find A Forex Broker

FOREX traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices.

Open an Account with a forex borker

Opening a FOREX account is as simple as filling out a form and providing the necessary identification. The form includes a margin agreement which states that the broker may interfere with any trade deemed to be too risky. This is to protect the interests of the broker, since most trades are done using the broker’s money.
Once your account has been established, you can fund it and begin trading.

Many brokers offer a variety of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in FOREX trading for as little as $250. Standard accounts may have a minimum deposit of $1000 to $2500, depending on the broker. The amount of leverage (how much borrowed money you can use) varies with account type. High leverage accounts give you more money to trade for a given investment.

Trades are commission-free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the ’spread’: the difference between bid and ask prices.

Paper Trading Forex Market

Beginning traders are strongly advised get accustomed to FOREX by doing “paper trades” for a period of time. Paper trades are practice transactions that don’t involve real capital. They allow you to see how the system works while learning how to use the various software tools provided by most FOREX brokers.

Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new FOREX investor should use these demo accounts at least until they are consistently showing profits.

FOREX Software

Each forex broker has its own set of software tools for making transactions, but there are a few tools that are common to all FOREX brokers. Real-time quotes, news feeds, technical analyses and charts, and profit-and-loss analyses are some of the features you can expect to see on most online brokers’ web sites.

Almost every broker operates on the Internet. To access a broker’s online services you’ll need a reasonably modern computer, a fast Internet connection, and an up-to-date operating system. Once your account is set up, you can access it from any computer just by entering your account name and password. If for some reason you are unable get to a computer, most brokers will allow you to make trades over the phone.

There are lots of ways to make money. FOREX trading is just one more potential stream of income — if you are prepared to learn and practice.

Of course many commercial organizations are participating purely due to the currency exposures created by their financial institutions accounts on their import and export activities. Investing in foreign exchange remains predominantly a domain of the big professional players in the market such as hedge funds, banks and brokers. Nevertheless, any investor with the necessary knowledge is and complete understanding of this market can benefit from this exciting arena.

Margin Trading

Foreign exchange trading is normally undertaken on the basis of margin trading or gearing. A relatively small deposit is required in order to control much larger positions in the market. This is possible because when you buy one currency you sell another. Margin requirements are set by your Customer broker and vary from as little as 1% to 10% margin. This means that in order to trade 1,000,000 USD on 1 % margin, you need to place just 10,000 USD by way of security. That same security of 10,000 USD, traded on a 10% margin could control up to 100,000 USD worth of one currency against another currency.

As you can see, with gearing your capital from 10 to 100 times calls for a very disciplined approach to trading as both profit opportunities and potential loss are equal and opposite.

Trade Currency and Price Currency

When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell Japanese Yen or buy Euros and sell Japanese Yen. There are many combinations of the dozens of widely traded currencies. There is always a long (bought) and a short (sold) side to each trade. This means that you are speculating in the prospect of one of the currencies strengthening and one of them weakening.

The trade currency or dealt currency is normally, but not always, the currency with the highest value. When for example trading US dollars against Japanese Yen, the normal way to trade is buying or selling a fixed amount of US dollars, USD 100,000. When closing the position, the opposite trade is done, again USD 100,000. The profit or loss based on price change will be apparent in the amount of Yen credited and debited for the two transactions. In other words, your profit or loss will be denominated in Japanese Yen that are known as the price currency.

24/5 and No Central Location

The FOREX Market has no fixed location. It is a market based on the vast network of hundreds of major banks and their branch offices across the globe. The liquidity is always there because someone, somewhere can make a price. From Monday morning in New Zealand to Friday afternoon on the California Coast the FOREX Market is basically a 24 hour 5 day a week market that does not stop. Australasia starts a day then comes the Asian market, then Europe, followed by the American and Canadian markets then Australasia again and the cycle continues with the markets closed only on the weekends or in countries with bank or national Holidays.

Spreads not Commissions

When trading foreign exchange, you are always quoted a 2-sided dealing price where you can buy or sell the trade currency. The difference between the buy and sell price is the spread

The dealing spread is typically around 5 basis points or pips under normal market conditions, e.g. EUR/USD 1.2250-55. This means that you can sell Euros against US Dollars at 1.2250 and buy Euros at 1.2255. There are no more costs, no commissions or exchange fees because so called commissions are built into the spreads. The wider the spread the bigger the commission!

Spot and forward trading (Swaps)

When you trade foreign exchange you are always quoted a spot price valued 2 business days in advance. This is under normal conditions where there are no bank holidays in the traded currencies countries or is not over a weekend. If you trade on Monday it is valued Wednesday. If you trade on Friday it is valued Tuesday.

Forward trading is making the opposite trade of a spot trade in a given period of time. Often investors will swap their trades forward for anywhere from a week or two up to several months depending on the time frame of the investment. Most common is one-day rollovers, keeping a spot position overnight. These overnight positions are technically one-day forwards. It is very important to know what interest you paying if short and what interest you are receiving if long when keeping an overnight position. Even though a forward trade is on a future date, the position can be closed out at any time. The closing part of the position is then swapped forward to the same future value date.

Stop-Loss discipline

There are significant opportunities and of course risks in the foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict self-disciplined stop-loss policies in positions that are moving against you.

Luckily, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekends. This means that there will nearly always be a possibility to react to moves in the main currency markets and low risk of getting caught without possibility of getting out. This market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.

The main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events such as G10 meetings are normally scheduled for week The main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events such as G-20 meetings are normally scheduled during the weekend.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

USD/CHF: Swiss franc
GBP/USD: Pound
USD/CAD: Canadian dollar
USD/JPY: Yen
EUR/USD: Euro
AUD/USD: Aussie

These six currency pairs generate up to 85% of the overall volume in the Forex market. So, for instance, if a trader goes long on the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency. Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency. If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread
All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2645/48 or 1.2645/8

The bid price is 1.2645

The ask price is 1.2648

A Pip
A pip is the minimum incremental move a currency pair can make. A pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.35 to 113.40 equals 105 pips.

Margin Trading (leverage)
In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call
A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader “theoretically” with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?
The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

It’s very important to understand every aspect of forex trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.

The Trend is Your Friend

Forex technical analysis is largely based around forex market movement trends, thus creating the widely used phrase ’the trend is your friend’ amongst traders. Buying and selling at the right time is the key in maintaining good levels of profits, following a trend is also about knowing where to entry a trade and more importantly where to exit.

Support and Resistance

Support and resistance is the basic of forex technical analysis. Support and resistance levels are points where a chart experiences recurring upward or downward pressure. A support level is usually the low point in any chart pattern (hourly, weekly or annually), whereas a resistance level is the high or the peak point of the pattern. Buying and selling at the support and resistance points makes a greater profit margin as long as they remain unbroken.

History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Forex technical analysis uses chart patterns to analyze forex market movements and understand trends. Although many of these charts have been used for more than 30 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

A trading system on the Forex market is a type of strategy that allows traders to trade with a set of rules. There are many free trading systems and strategies printed in trading articles, journals, books and on trading-related websites. I would have to say that if you are not inclined to learn how to develop your own trading methodology, then perhaps you should consider giving your money for someone else to invest. Give it to someone who is trading a system that he developed and tested himself because he is more likely to have the confidence and courage to follow his own trading system.

Why you need a forex trading system?

1. It’s easy to trade with a system.
2. A good system provides consistent result.

What makes a good trading system?

• It’s simple. Forget complicated systems with lots of rules – it’s a proven fact that simple systems work better – and are less likely to fail, in the brutal world of trading.
• A trading system with profitable expectation.
• It provides good ratio of reward/risk.
• A system of comprehensive risk management including market exposure weightings, stop-loss provisions and capital commitment guidelines that preserve capital during trend-less or volatile periods.

Once you learn how to develop trading systems and strategies, you can then be better equipped to test them as well. By this point you might even find that the system created by yourself is the best one for you, because it becomes the system more suited to your profit objectives while operating within your risk tolerance levels. It is likely that once you develops this level of competence, you will simply acquire other trading systems only to dissect them, grab the parts you likes and add them to your own system. To me, the irony is that for a trader to know which system to purchase, you must first learn how to create a system. And after knowing how to create a system, he will no longer have the need to buy one.