Requirements for Forex Trading
Many traders and students of the financial markets find the foreign currency exchange (Forex) market enticing. Unlike the stock market, you can trade Forex in the evenings or any other time you wish, because it is open 24 hours per day. This lets novice traders maintain a day job while they practice trading. To get started in Forex trading, you must satisfy a few basic requirements.
Other People Are Reading
-
Capital
-
The most obvious requirement for Forex trading is the investment capital used to make the trades. You must have money for buying and selling the currencies. The amount of capital needed is a matter of personal choice and depends on the type of brokerage account you set up. In the United States, you can purchase up to 50 times the amount of currency you have in cash in your account. This is called "leverage." If you want to buy $100,000 worth of currency, you only need to deposit $2,000. Some Forex accounts, such as "micro" accounts, let you deposit a very small sum, as little as $50, which buys you $2,500 of currency.
Charts
-
Most Forex traders rely on price charts to make trading decisions. The Forex market is strongly chart-driven, because economic and fundamental data are more difficult to access and understand when trading currencies than when trading stocks. Companies, for example, issue quarterly earnings reports on the health of their business. This affects stock prices significantly. A similar stream of consistent information on specific currencies is not as readily available, so traders look to charts for clues about future prices. Thus, accessing charts is a basic requirement of the field. Most trading programs include chart features, but you can also find charting software for free online.
-
Trading Platform
-
You cannot place a Forex trade without electronic access to a broker. The Forex industry is nearly all-electronic, and brokers specialize in creating computer software for executing trading orders. You can try the programs offered by different brokers for free by opening demo accounts. This helps you identify the key features of trading software and helps you find an interface that suits your needs.
Warning
-
Many novice traders believe that if they have the money and the tools, Forex trading is fairly straightforward. However, because of its leverage and volatility, the currency market is one of the riskiest in the world. It is important that you spend time practicing your strategy with little or no real money involved. Most brokers provide simulation accounts for trading with virtual cash. You should test your process in these systems before you put your money to work.
-
