How to Get Started Trading Currencies

Many futures and stock traders are aware of the excitement surrounding the currency market. However, because foreign exchange trading was until only recently limited to multinational corporations, money-center banks, and the largest investment firms, forex remains a new and unfamiliar market to many self-directed, retail traders. As a consequence, despite the undeniable advantages that the forex market offers, some online traders are no doubt apprehensive and reluctant to participate. With the passage of time, the benefits will undoubtedly become more widely known and better understood, and more traders will almost certainly migrate from the equity and futures markets. In the meantime, interested traders can take steps to bring themselves up to speed and learn more about this exciting market.

Take a Currency Trading Course

Almost all forex trading courses available today fall into the self-study or seminar categories. Both have important strengths and weaknesses. The self-study camp is generally comprised of web-based courses, CD-ROMs, workbooks, or any combination thereof. While self-motivated and highly disciplined traders might find self-study courses to be perfectly satisfactory, many traders require the structure of a more formal learning environment and would benefit greatly from individual instruction. Seminars, hosted by various brokers and financial market educators around the country, typically run 1-3 days in length. Most walk traders through at least a fair range of important topics in a more or less methodical way. The drawback, of course, is that in addition to the cost of the seminar, traders must absorb travel and accommodation expenses. And at many seminars, the number of attendees makes personal instruction impossible.

Happily, the latest trading courses make use of online technologies to offer a complete curriculum, a perfect mix of convenience and structure, and all the benefits of a classroom environment and one-on-one instruction -- at an economical price. 

A complete trading course can be put online and broken down into daily lessons (for example, one lesson per day for a full month). Though the trader must log into the website to view each day's lesson, he may do so at any time that's convenient. After each lesson, students have the opportunity to post questions for course instructors and to discuss ideas with fellow students in a virtual classroom. Brief daily assignments and quizzes -- and even individualized feedback from instructors based on the assignments -- all play an important role in reinforcing material and help traders learn each day's lessons. And when a complete online course is combined with a practice trading account, the trader has a risk-free opportunity to apply the lessons and strategies learned, and instructors can offer pointers, tips, and suggestions to help refine and improve trades. This new type of course represents a quantum leap forward in trading education.

Practice Trading FX in a Demo Account

Many online forex brokers today offer paper trading accounts, and there's simply no better way to familiarize oneself with the currency market and the broker's trading platform. Generally, FX paper trading accounts are identical to live, "real" trading accounts, in that the demo trader enjoys all the same tools and features that are available on the broker's actual system. The trader will get a feel for real-time, continuously-updating bid/ask prices. He can experience order placement and execution. Account balances, margin requirements, and P&L are usually updated in real-time, as well. The only difference, of course, is that paper trading accounts are "funded" with anywhere from $10,000 to $50,000 in hypothetical money, which means that trading methodologies can be tested and evaluated under actual market conditions -- without having real capital at risk. You'll likely find that most demo accounts have limited lives and expire in anywhere from two weeks to one month. But for most traders, that's perfectly acceptable -- after getting the feel of forex trading in a demo account, most traders are enthusiastic about taking the next step and opening a real account.

Consider Trading Mini FX for Starters

Several forex brokers now offer mini FX accounts, which are designed for those new to online currency trading and those with limited trading capital. Such accounts can be immensely helpful to traders who wish to learn currency trading while minimizing their risk. Instead of trading full-size currency lots (100,000 units), downsized lots (for example, 10,000 currency units) may be traded. Though the leverage in a mini FX account can still be substantial, the smaller lot sizes -- with correspondingly smaller tick values -- means that the trader will be assuming less total risk. For example, while a 20-pip loss on a 100,000 EUR/USD position would be $200, the same loss on a 10,000 EUR/USD position in a mini account would amount to only $20.

The Mini FX account can be useful in helping traders develop a disciplined, rational forex trading strategy without excessively focusing on profits and losses. When trading 100,000 currency unit lots in a regular, full-size account, traders with relatively small balances tend to fixate on their equity fluctuations and sometimes base trading decisions on emotional reactions to these fluctuations. Many traders, for example, resist closing-out unsuccessful trades at a loss, because they hope that the market will turn in their favor. Conversely, many tend to immediately take profits when the market moves in the desired direction, rather than maximizing their gains by allowing profits to run. With less capital at stake in a Mini FX account, however, the trader can develop a disciplined trading methodology -- as well as the confidence needed to be a successful currency trader -- without the anxiety and distractions that come with large P&L swings.