How Do I Begin Trading Forex?

I’ll assume that you have some knowledge about Forex either from a book or website.  I’m not going to give definitions of a pip or explain what a base currency is.  There are plenty of places you can find this information.   What I want to provide are practical lessons for the beginner, lessons that can help straighten the learning curve.  

There’s a lot of information out there on forex, some of it good and some of it misleadingly bad.  Be careful.  Trading forex is many times portrayed as a way to get rich fast; a home-based business.  This is the furthest than from the truth.  Trading forex is risky and though it may be possible to turn it into a home-based business, you need a lot of capital and experience.  To give you an idea, a very experienced and respected currency trader had the following yearly returns: 71% in 2004, 433% in 2005, 53% in 2006, and 30% in 2007.  Let’s just say for a minute that you were as successful as this trader and started 2007 trading forex as a home-based business with $5000.  Could you live on the $1500 you made in 2007? I doubt it.  I’m not trying to discourage you from trying but I think it’s important to be realistic.  If you dive into currency trading with unrealistic expectations, you’re not going to get far.

Maybe you’ve read a book on forex, read something about trading forex on the internet or you went to a trading seminar.  This is something that interests you, something you want to commit time to, initially as a hobby and maybe one day for a living.  After you have this basic knowledge, where do you begin? 

  1. I’d recommend buying a book on forex because it contains a little of everything.  It explains what the forex market is and answers other basic questions.  In addition it should contain information on reading charts and technical analysis.  Read the book from cover to cover.  When you’re done, move on to step 2.
  2. Download and install Metatrader which is a free trading and charting platform.  You will prompted to open a demo account after installation.  You can download Metatrader from any number of places.  One such place is  Start playing around with Metatrader to learn what capabilities it has. You’re not going to find a Metatrader book in your bookstore but you will find online manuals on the internet.  There is also a huge user community around Metatrader.  You can find any one of these communities by googling "metatrader forums."
  3. Start applying some of the things you learned from the technical analysis sections of the book to your charts.  Draw some trendlines or add some indicators.  Start placing some trades also.  Don’t be concerned about how much you’re risking or whether you’re going to win or lose.  Just get a familiarity with how to place a trade.  There’s only two directions you can trade in, long (buy) or short (sell) but there are many currency pairs.  Try concentrating just for consistency on the EUR/USD, GBP/USD, USD/CHF, or the USD/JPY (the four most popular currency pairs.)

These three steps should keep you busy for quite some time.  Take some time to get familiar with it all then you can move on.