How to make money with forex

What is forex

So you've heard countless stories about how people are making millions each year with something called Forex. Now what is Forex exactly?

Forex is made out of the words Foreign Exchange. It is also sometimes abbreviated to FX. Even though the name is quite complicated, Forex itself isn't - in short, it is just changing one currency to another. According to Wikipedia, it is the largest financial market in the world and that the average daily trade in the global Forex is over $3 trillion USD!

Getting started

So now you know what Forex is and how successful it is, it may be time for YOU to start. But remember, Forex is revolved around risks - if you aren't willing to risk money, then its best to look for other methods of making money. Thousands of people may be making big money each day, but then again thousands of people are losing big money each day. In the world we live in today, you have to make risks to make money.

Choosing a suitable Forex broker

Forex brokers don't charge commission, but from the difference in the sale and purchase price of currencies at any given point of time. This difference is referred to as the "spread", and is calculated in "pips". To save money, choose a broker who offers lower spreads on your Forex investments.

Other things to look at when choosing your broker are:
Quality Institution - Unlike equity brokers, Forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required. Also, Forex brokers should be registered with the Futures Commission Merchant and regulated by the Commodity Futures Trading Commission. You can find this and other financial information and statistics about a Forex brokerage on its website or on the website of its parent company.

Extensive Tools and Research - Forex brokers offer many different trading platforms for their clients - just like brokers in other markets. These trading platforms often feature real-time charts, technical analysis tools, real-time news and data, and even support for trading systems. Before committing to any broker, be sure to request free trials to test different trading platforms. Brokers usually also provide technical and fundamental commentaries, economic calendars and other research.

Wide Range of Leverage Options - Leverage is necessary in Forex because the price deviations are merely fractions of a cent. Leverage, expressed as a ratio between total capital available to actual capital, is the amount of money a broker will lend you for trading. For example, a ratio of 100:1 means your broker would lend you $100 for every $1 of actual capital. Many brokerages offer as much as 250:1. Remember, lower leverage means lower risk of a margin call, but also lower bang for your money.

Account Types - Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage. The standard account lets you trade at a variety of different leverages, but it requires a minimum initial capital of $2,000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services.

There are things you need to avoid in a broker :

Sniping or Hunting - Sniping and hunting - or prematurely buying or selling near preset points - are shady acts committed by brokers to increase profits. Obviously, no broker admits to committing these acts, but a notion that a broker has practiced sniping or hunting is commonly believed to be true. Unfortunately, the only way to determine which brokers do this and which brokers don't is to talk to fellow traders. There is no blacklist or organization that reports such activity.

Strict Margin Rules - When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at its discretion, which can be a bad thing for you. Let's say you have a margin account, and your position takes a dive before rebounding to all-time highs. Well, even if you have enough cash to cover, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly.

Getting a Forex Account

The next step is to open a trading account with your broker. The minimum amount required to open it differs according to the various kinds available. Essentially, it will depend on the amount of capital you have, and the average amount you intend investing in the future. For example, a mini-account may require a minimum investment of about 250 dollars, depending on the broker. Premium accounts are also available, which may require you to trade with a minimum of around 10,000 dollars or more, again according to the broker. Mid-range accounts, which fall between one to two thousand dollars, are considered the best for small investors.

Conducting Fundamental Analysis

Fundamental Analysis is one of the two basic genres of strategy in the Forex market.

Since envisaging the future economic scenario of the whole country can be uncertain, it is often very difficult to accurately predict the future value of a currency. However, you can use some of the economic indicators available, such as Non-farm Payrolls, Purchasing Managers index, Consumer Price Index, volume of retail sales, durable goods turnover, and others to get a general idea about a country's existing economic status, and its future prospects.