Forex Trading for Beginners

Commercial enterprises doing business in foreign countries are at risk, due to fluctuation in the currency value, when they have to buy goods or services from or sell goods or services to
another country. Hence, the foreign exchange markets provide a way to hedge the risk by fixing a rate at which the transaction will be concluded at some time in the future. To accomplish this, a trader can buy or sell currencies in the forward or swap markets, at which time the bank will lock in a rate, so that the trader knows Exactly what the exchange rate will be and thus mitigate his or her company's risk. To some extent, the futures market can also offer a means to hedge a currency risk depending on the size of the trade and the actual currency involved. The futures market is conducted in a centralized exchange and is less liquid than the forward markets, which are decentralized and exist within the interbank system throughout the world. (For a new way to hedge your currency, read Hedge Against Exchange Rate Risk With Currency ETFs)

* Always trade the forex with a stop :

Order, not because you expect to lose, but to prevent a large loss from an unexpected news event like a currency devaluation, terrorist attack, tsunami, or some other unexpected worldwide event. Nobody can predict tomorrow. These very market conditions may even prevent a stop order from being executed exactly where you place it. Please consult with your broker on their written policies and details of how they execute stop orders.

* Lack of Experience :

Forex trading - like any new initiative - has a learning curve. However, unlike learning a new skill such as learning to play guitar for instance, you are not risking your entire savings while discovering the difference between a major and minor chord. Learning about the currency markets and basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful forex trader.

Most online forex brokers offer a practice version of their trading platform that offers the very same experience as a live trading application. Typically, once you create a practice account, you are free to trade and deal as you wish risking only the "play" money used to seed your account.

With a forex demo account, you can see how the market reacts to economic forces including news events without actually risking your investment capital. However, you must treat this account seriously if you expect to learn from the experience. If you simply shrug off a loss without understanding why the loss occurred, then you are wasting your time and setting yourself up for disappointment. Take advantage of this unique forex market training tool before committing your money to a real forex trading account.


* Do not start with thousands of dollars :

This is the first tip that you need to understand. Forex brokers have a way of knowing an experienced trader and one who is just getting into the game. With this they know that most of the cash you start with will end up in their accounts. As much as you want to walk away with thousands of dollars in your first month of trading, it is wise start with an opening balance that is reasonable to you. This will give you the space that you need to learn the ropes of forex trading.