If you have not traded forex but you are looking forward to do it, then this article is for you.
You love the market, you want to be a good trader, but you don’t know where to start. Probably you have some questions like: How can I buy currencies? How much money do I need? How much can I earn?
Maybe stock market is better? If yes, how can I trade it? What else should I consider?
Before we begin, I want to remark that you should ask yourself different questions like: What am I trying to achieve? How much am I willing to lose?
However, the best way to learn something is by doing it! Even if you have no idea about market rules. Remember that all brokers have free Demo accounts, and this is a great way to start learning. So, today I will start answering your questions, not the right ones.
How can I buy currencies?
To buy currencies you need a broker to do it for you. Specifically, you need a Forex (Foreign Exchange) broker. A forex broker is a company who is authorized to buy and sell currencies in the interbank market. You only need to tell him what and how much you want to buy or sell and he will do it for a small commission. From now, the commission paid to the broker will be the Spread.
You can call the broker to say what you want to buy or sell, but nowadays no one do that! You only need to go to a forex broker website, create a demo account and download the Demo platform.
By now, you should try to use a broker to buy or sell some currencies. To do it, I recommend you to do the Brokinator Guru Test; he will recommend you the best broker to start trading. Anyway, Roboforex is one of the greatest brokers for beginners.
Remember, you can only execute your trading orders if the market is open! Fortunately, forex is open 24 hours every day; it is only closed on weekends.
How much money do I need?
Most experts will tell you a lot of things to do and consider before start trading. But all of them started without those things, you will learn a lot trading every day, not reading forums every day. So we shouldn’t pay much attention to those views, because if you do, you will not start anything.
A movement of 1 pip costs you $10 if you are using standard lots. Remember that some days the market moves more than 100 or 200 pips so you can earn/lose $1.000 or $2.000 in a single day!!
But don’t worry! Forex has a great solution for beginners, you can use micro accounts.
A micro accounts allows you to buy micro lots, where every pip is only $0,10.
1 standard lot – $10/pip
1 mini lot – $1/pip
1 micro lot – $0,1/pip
This way, if you do a 200 pips trade (a very huge one), you can earn $20 or lose $20. This sounds better, right?
So, as you can see you can start trading with very small accounts. Most brokers allow accounts from only $10 but I recommend you to start with at least $200. Remember that you only want to try the real forex trading, by now you don’t want to be profitable in the long term. If you want to trade seriously, I recommend you at least a $2.500 trading account.
How much should I buy in each trade?
This is not an easy question, but I have a general rule. I never trade more than 1 or 2 % of my account in a single trade. Let’s see an example, I have analyzed the market and I have decided to do a trade where I expect to earn 150 pips or lose 50 pips.
If I buy 1 micro lot, and my trade is wrong, I’m losing (50 pips * $0,10/pip) $5. If I have a $500 account (5/500) I will lose 1% of my account in a single trade. That’s ok for me, my mind can bear that.
Imagine that I do a similar trade again, unfortunately I fail! Don’t worry, my account is now $10 down, but I still have 490$ to trade. If the third trade works, I will earn 150 pips ($15) and my account will grow fast to $505!
I highly recommend you to ask yourself these 3 questions before doing a trade:
- If everything goes wrong, how will I lose?
- Can I bear that lose?
- Which is the ratio between benefits/loss? I recommend you a ratio higher than 1,5.
By now, you can start trading without knowing much about forex market. But, at least you have a good money management strategy to earn money.
A surprise for you!
I have made a lot size calculator on excel to easily ask the 3 key questions. You can know how much are you risking in every trade and also know your benefit/risk ratio very fast.
The calculator is Free; You only need to share this article through Facebook, twitter or Google+ clicking in the buttons below. We appreciate your collaboration!
¡Enjoy it![sociallocker id="2514"] [/sociallocker]