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Getting started in Forex
Before giving Forex trading a shot, you might want a brief description of what Forex is.
Forex market (also known as foreign exchange or FX) is a global marketplace for the exchange of national currencies, opening virtually 24 hours a day, 5 and a half days a week. On the FX market platform, currencies are traded in pairs of two, and transactions occurred between traders from ALL AROUND THE WORLD. Thus, the market is active in any timezone throughout the day with price quotes changing constantly.
Theoretically, that is the simplest definition of a Forex market. More details can be provided in our different articles. This article will continue to inform you of 4 steps to get started in Forex.
- Choosing a Forex Broker
- Broker Actions to Avoid in Forex Trading
- Defining a basic Forex Trading Strategy
- Finding your Forex Trading Strategy
Choosing a Forex Broker
First of all, of course, you need a Forex Broker – they are an intermediary, the third party that connects traders with the market. They go through and support all retail Forex trading. Some of them might be specialized in Forex Trading, while others are the same brokerage you utilize for stock market investing and trading if you are already familiar with stock.
For example, CFD Trading. The Difference Contract (CFD) gives traders the ability to take advantage of market fluctuations without buying the underlying asset. Some of the benefits of CFDs include access to the underlying asset at a lower cost than simply purchasing the asset, ease of execution, and willingness to run long or short.
To find a reputable, successful, and suitable broker to invest your capital into, a process is underway. These are notable points to add to your checklist:
Look out for Low Spreads
“Spread” is the difference between the BID price from the buyer (the highest buyers are willing to buy) and your ASK price (minimum price you are willing to sell) at any given time. This difference is also how Forex brokers make profits since they don’t charge a commission. The lower spread, the more money you save! Many brokers manipulate the spread to gain more for their own. Look out for brokers with a good reputation, no allegations or complaints of fraudulent dealing to avoid being charged a higher spread/service fee.
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Finding a reliable, quality broker/brokerage, backed by regulators is crucial
Before even THINKING of putting your money on a broker, you have to give their brokerage a background check. Find research about the available brokers through reliable sites- like the NFA website or through broker reviews. In addition to that, your broker should be regulated by regional regulators, as listed in the list below:
- United Kingdom: Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)
- Australia: Australian Securities and Investment Commission (ASIC)
- Switzerland: Swiss Federal Banking Commission (SFBC)
- Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
- France: Autorité des Marchés Financiers (AMF)
Make sure to check the brokers’ licenses on their websites from their regulators.
Extensive tools and Research are the keys to success!
In return for a supported account and/or making a specified number of trades per month, Forex brokers also offer their clients free trading platforms, or at a discount cost.
A trading platform is a software specified for investors and traders to place trades/ monitor accounts. They usually come with extensive tools, including real-time quotes, charting tools, related market news, and financial data. Besides that, brokers also provide technical and fundamental information, economic calendars, and other reports. Take advantage of these tools as it will give you lots of assistance as a beginner. Be sure to test free trials from different trading platforms before committing to any brokers.
Wide range of Leverage Ratios
Leverage, represented as the ratio of the total capital available to the real capital, is the amount of money that the broker can lend to you for trading. For example, a ratio of 100:1 means that your broker will lend you $99 for every $1 of real money so you will have the buying power of $100. Many brokers offer up to 1000:1.
Make sure your broker provides high leverage with a margin account if you have finite capital. If capital is not a concern, any broker with a wide range of options for leverage can do so. A selection of choices helps you to vary the amount of risk you are prepared to take. For example, for highly volatile (exotic) currency pairs, less leverage (and thus less risk) might be preferable.
Broker Actions to Avoid in Forex Trading (scam)
While the lucrative income of Forex Trading sounds enticing, it typically becomes more complicated than it appears to be. Unfortunately, the gains from the Forex market are enticing to fraud and scammers, enough that they would:
- Violating Regulatory
When traders find out that a brokerage firm is controlled by well-known and influential organizations/authorities, they assume that they are protected and that they can no longer be fooled, but that is not true. Some highly regulated brokers cheat the most on their customers, because:
- There are still some special ways of cheating that the regulatory authorities can not track down.
- Brokers can bribe regulators and ask them to be kinder to them and close their eyes to such events.
Many of the people who work in the regulatory authorities are the owners of brokerage firms, so they know how to circumvent the rules.
There are 3 basic rules to avoid scams:
- Do not chase for too-good-to-be-true offers/ empty promises
- Be particularly wary of software that claims to have discovered a ‘secret formula’ with guaranteed success, because there is no 100% success when it comes to trading.
- Don’t install any programs until you know they won’t harm your computer
Scammers prefer to concentrate on newcomers and novice traders who are easy targets. Since Forex trading takes place online, scams are harder to detect. We have listed out the 3 common techniques scammers used:
- Robot scams
A Forex robot is a trading software that utilizes computer code algorithms or lines as technological signals to open and close trades. Not all Forex robots are scams. But make sure to check out this list before deciding on one:
- Does the author of a Forex robot send you unrealistic marketing messages? If there are no results to back up their ridiculously good-sounding profits you can make using their robot, it’s likely to be a scam. Numbers do not lie.
- Surprisingly high percentage growth returns? Some Forex robots promote their systems of yielding over a 4,000% return in a couple of years. Nonetheless, look closely for the return could just be closed trades.
- Undiversified methods for scalping. A scalping method is used by many Forex robots, which means they sell for very tiny profits. This then illustrates a strong win rate and, in a supportive business environment, will inflate the figures. However, business circumstances shift, and if the scheme loses more than it gains every transaction, it will take just a few losing trades to wipe out any accumulated benefit.
- Using uncontrolled intermediaries. Using uncontrolled brokerage no one has ever heard about, some Forex robots produce an incredibly good performance. The outcomes on their interbank spreads might be nice in this case, but if you open an account with them, the spreads and commissions will be larger, cutting into more of the profit
- Signal Seller Scams
Sellers of Forex signals are people who send out trade ideas that typically include a currency pair, direction, entry price, stop loss and target levels. There are some points to watch into so that you are not a target of these forms of forex trading scams:
- Subscription fees: Without any verification, individuals will sell impressive results to you. You often need to pay high subscription fees to gain access to the trades, or they start low and use credit or banking details for other types of money scams. If they have such good trade signals, why sell them at all?
- Broker-tied signals: You are provided trading signals by certain signal sellers, but only if you sign up with a particular broker. This ensures that they can get a kickback from the broker, so they are motivated to give you any trades that you may take, regardless of whether they win or lose. Some would want to keep you successful after saying this, so they can continue to collect their kickbacks from the dealer, which serves as their service charge.
- Unverified results: It’s all well to say a high percentage return was made by your forex signals, but if they can’t show a proven track record, it means that they don’t trade the signals themselves, which is a red flag in itself.
- Phoney Trading Investment Scam
Nowadays, several commercials are advertising bogus forex trading investment scams and fraudulent forex investment funds. In essence, you will be sold on the phantom, or unverified performance, of their forex fund by a slick marketing message or salesperson: All you need to do is give them your investment and you can sit back and enjoy your returns.
Of course, a lot of people who send their money never see it again. The brokerage claims they’ve never heard of you, and they haven’t got any money from you. What began as a forex trading investment scam is now turning into one of those money scams.
Another case is that they create an account for you, usually with an unregulated broker. However, after one or two transactions, the account will be wiped out. Though they blame it on the economy, it’s all gone to their brokerage firm. Moreover, since it is unregulated, it is very difficult to get your money back.
Defining a Basic Forex Trading Strategy
Technical analysis and fundamental analysis are two of the techniques commonly used in the forex industry. Technical analysis is by far the most common approach used by individual forex traders, as we will discuss in more depth below.
- Fundamental Analysis:
Fundamental analysis in the forex market is very complex and is mostly used to forecast long-term trends. There are several important indicators of currency values published at a variety of different times, such as Non-farm Payrolls, Purchasing Managers Index (PMI), Consumer Price Index (CPI), Retail Sales, Durable Goods
These reports are not the only fundamental variables to be tracked. There are also some meetings where quotes and statements can affect markets almost as much as any article. These meetings are also held to address interest rates, inflation, and other problems concerning currency valuations.
Changes in wording while addressing certain issues — for example, the Federal Reserve Chairman’s comments on interest rates — may contribute to market volatility. The Federal Open Market Committee and Humphrey Hawkins Hearings are also two important meetings for forex traders to follow.
Reading the papers and reviewing the comments would help key forex analysts develop a better understanding of long-term market patterns and allow short-term traders to benefit from exceptional events. If you want to follow a fundamental approach, be sure to keep the economic calendar handy at all times so that you know when these reports are published. Your broker can also have access to this type of information in real-time.
- Technical Analysis:
Forex technical analysts evaluate price patterns close to those of their peers in the stock markets. The only key difference between forex technical analysis and equities technical analysis is the timeframe, as forex markets are open 24 hours a day. As a result, certain forms of technical analysis of the time factor must be updated to the 24-hour forex market factor. These are some of the most common technical research types used in forex: The Elliott Waves, Fibonacci studies, Parabolic SAR, Pivot points
Many technical analysts combine these studies to make more precise forecasts. (i.e. the traditional method of combining Fibonacci studies with Elliott Waves.) Others create trading networks to repeatedly locate identical purchase and sale conditions.
Finding your Forex Trading Strategy
Finding a Forex strategy depends mainly on the traders’ trading style. It also depends on the traders’ conditions, including their capital amount/ budget, time for trading, trading target, etc.
Fundamental Approach: The Forex market is driven by supply and demand, and the fundamental approach is aimed at understanding the factors that influence supply and demand for benefit.
Fundamental trading is mostly related to buy-and-hold strategies rather than short-term trading.
The Fundamental Research and open long-term positions can be pursued by an investor with a high capital valuation, but low on time.
Some considerations need to be weighed before starting to explore this strategy. Firstly, some of the relevant economic indexes have a greater effect on the performance of the currency than others, which means that the release of such indices or statistics is more likely to have a greater impact on the markets than the publication of any other relevant information or event.
Technical Approach: In technical analysis, there is enough room for those who know how to read charts and how to take action (buy/sell) by looking at charts. Trend analysis, the right time to enter and leave, and early trade signals are the greatest advantages of technical analysis, which should inspire all Forex players to learn about and start using this powerful method.
The technological method should be pursued by a trader who does not have much money but finds trading as his full-time career.
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