What Is Forex?

Forex (Foreign Exchange) is an excellent way to supplement your income if you know what you are doing.

Believe it or not Forex is something you can do as soon as you get out of bed, turn on your computer, make an initial deposit into your online Forex broker account, and start making (or losing) money. (The initial deposit requirement varies from broker to broker).

Some Forex brokers will allow you to deposit as low as $10 in a micro account. Other brokers require a minimum initial deposit such as $100, $200, $500, $1000, $2500 etc. Some brokers allow you to deposit $100,000 etc.

A good rule of thumb is never deposit more money then you can afford to lose.

"The Forex market moves to probabilities, not certainties; the good news is you can spot high odds trades and by trading high odds set ups, you can become a winner in the long term. All you need to do is keep your losses small and run your profits."

There is no such thing as never losing a trade. You are going to have winners and losers. But the important part is, if possible, you only want to deposit a small portion of your hard earned money once into your brokers account, and hopfully from there gradually build it up (after which it is ok to lose and win back money you gain from the market. But if you lose your initial deposit right away it is not a good idea to keep depositing more and more money from your bank account into your Forex account in hopes you will get it all back and then some.) (Please see Money Management.)

Forex, by the way, is similar to trading stocks except you trade currencies online instead.

It is all done online by using free charting software which you can download to your desktop (MT4, otherwise known as MetaTrade 4, is one of the most popular charting softwares, and is offered by most brokers as a free download).

For information about MT4 Click Here.

When you trade foreign currencies the money is automatically converted into your country’s currency once it reaches your broker account as either a gain or loss.

For example, if you trade the British Pound (GBP) and Japanese Yen (JPY) and end up with a winning trade the money will end up in your account in US dollars if you are from the US etc.

Following is a video I created so you can have a visual understanding of what I am writing about.

CLICK HERE To Watch VIDEO

Trading currencies in Forex can be very, very lucrative even in times of economic downturn, but also very, very risky if you risk too much at once.

Risk is involved when trading in Forex, but if you study the information below (as well as at the recommended links) you can keep your risk to a minimum.

Many people who read about earning money online by trading in Forex, and then give it a try, and lose hundreds or thousands of dollars in a matter of a few minutes or in a few months, sometimes come to the conclusion that Forex is a scam.

But it all depends upon how you manage your money when trading. (See Money Management).

If you become greedy and risk too much at once you can either lose it or double it very fast just like in gambling.

Or you can take very small risks, and slowly build up your account in winning trades so that in the long run you come out ahead (more wins than losses), and have a nice monthly income if you are persistent.

For example, what is better? To deposit $1000 in your broker account, and then open a trade with a large lot size in an attempt to turn your $1000 into $2000 in a matter of minutes or hours?

Or is it better to turn the $1000 into $2000 (or even into $4000) in several months or even after a year if you are trading 10 cents a pip?

The latter is the safer choice.

That would mean you are using a very small lot size which is safe to use for small deposits, rather then using a large lot size that can wipe out your account in a matter of minutes, or overnight.     

Keep in mind that you can never lose more then you deposit. For example, if you deposit $1000, and then your balance is depleted, that is it. If you want to trade some more you have to add another deposit. It is not like you deposit $1000 and then lose $100,000  and then owe the broker $90,000. It does not work that way.  

A good place to start learning about Forex, especially if you are a beginner,  is at the following free website:

http://www.babypips.com/school (Free Online Course)

It was mentioned above that Forex is the trading of currencies.

Currencies are traded in pairs:

EURUSD, GBPUSD, AUDUSD, NZDUSD, USDCAD, USDCHF, USDJPY etc., etc., etc

Currency abbreviations

1) British Pound (GBP)

2) Japanese Yen (JPY)

3) US Dollar (USD)

4) Swiss Franc (CHF)

5) European Union Euro (EUR)

6) Australian Dollar (AUD)

7) New Zealand Dollar (NZD)

8) Canadian Dollar (CAD)

As a new trader it is best to start trading just one currency pair.

A good currency pair to start trading is the EURUSD.

Keep in mind that every time you place a trade you will have to pay a small commission fee (if you are using a ECN broker) or a spread (if you are using a Market Maker broker).

The spread is a –pips amount that will immediately be deducted from your account balance as soon as you place a order.

For example, if you place a order that is 1 lot ($10 per pip), and the spread for the currency pair you are trading is 3, then as soon as you place the order you will be at -3pips or -$30.

The lower the spread the better. The EURUSD is usually the lowest spread (often 1, sometimes 2 or 3). Any currency pair with “USD” in it usually have lower spreads (especially EURUSD, GBPUSD, USDCHF, USDJPY).

For info about currencies see:

http://www.babypips.com/school/currencies-are-traded-in-pairs.html

Other popular currency pairs to trade are: GBPUSD, USDCHF, USDJPY etc.

As far as when to trade, Forex is divided up into 3 main sessions, and is open 5 days a week.

The three sessions are: Australian/Tokyo, London, New York.

The trading weeks starts at 8:00 am Monday morning Wellington, New Zealand time. If you are in the Eastern US it will still be Sunday 5pm when trading starts.

The trading week ends on Friday at 5 pm (17:00) Eastern US time. Tuesdays and Wednesdays during the London session are usually the 2 best days to trade, but you can trade all 5 days if you so choose.

If you are trading the EURUSD this does not mean you need to stay awake during the entire London and US sessions.

The London and US sessions overlap between 8 am and 11 am Eastern US time. There is a lot of price movement during that time. If you have to leave for work by 8am then you can place a trade when you wake up, and then go about your day.

Look for a high probability trade, set a stop loss and take profit, and then place your trade and go about your business.

All you really need is to enter 1 trade, get perhaps 20 pips – 40 pips, and then not trade again until the next day.

If you are trading 1 lot ($10 per pip), then 20 pips will be $200 if it does not end up in a -20 loss. If you therefore make 20 pips a day, 5 days a week, that is $800 a week or $3200 a month.

If you aim for 40 pips a day, you will get $6400 a month…and so on (assuming there are no losses).

Sound easy enough?

Well it’s not that easy. Even for experienced traders the market is unpredictable (that is why they call it “speculation” when choosing to enter a trade). 

There are thousands if not hundreds of thousands of trading systems, ebooks, websites, seminars, indicators, trade signal services, and so on that are both free, and very expensive, that will teach you how to trade (or that will trade for you). But in the end it is all speculation and the market is unperdictable.

Ed's expert advisors can be adjusted to place safe automatic trades for you. But as with all EA's there is danger and risk involved if you adjust the EA to over trade, and if you also use a lot size that is too large for your balance. (See Money Management).

Please also see Forex Trading Hours, News Release Info, and Currency Pairs.  This article also includes important information about news releases.