Forex: Wading Into The Currency Market

Whenever you devote money to trading, it is important to take it seriously. Many traders are getting into the forex (FX) market for the first time and are basically starting from square one. But new traders don't have to be left in the dark when it comes to learning to trade currencies; unlike with some of the other markets, there are a variety of free learning tools and resources available to light the way. You can become FX-savvy with the help of virtual demo accounts, mentoring services, online courses, print and online resources, signal services and charts. With so much to choose from, the question you're most likely to ask is, "Where do I start?" Here we cover the preliminary steps you need to take to find your footing in the FX market.

Finding a Broker
The first step is to pick a market maker with which to trade. Some are larger than others, some have tighter spreads and others offer additional bells and whistles. Each market maker has its own advantages and disadvantages, but here are some of the key questions to ask when doing your due diligence:

Where is the FX market maker incorporated? Is it in a country such as the U.S. or the U.K., or is it offshore? Is the FX market maker regulated? If so, in how many countries? How large is the market maker? How much excess capital does it have? How many employees? Does the market maker have 24-hour telephone support?

In order to ensure that the money you are sending will be safe and that you have a jurisdiction to appeal to in the event of a bankruptcy, you want to find a large market maker that is regulated in at least one or two major countries. Furthermore, the larger the market maker, the more resources it can put toward making sure that its trading platforms and servers remain stable and do not crash when the market becomes very active. Third, you want a market maker with a larger number of employees so that you can place a trade over the phone without having to worry about getting a busy signal. Bottom line, you want to find someone legitimate to trade with and not a bucket shop.

Checking Their Stats
In the U.S., all registered futures commission merchants(FCMs) are required to meet strict financial standards, including capital adequacy requirements, and are required to submit monthly financial reports to regulators. You can visit the website of the Commodity Futures Trading Commission (an independent agency of the U.S. government) to access the latest financial statements of all registered FCMs in the U.S.

Another advantage of dealing with a registered FCM is greater transparency of business practices. The National Futures Association keeps records of all formal proceedings against FCMs, and traders can find out if the firm has had any serious problems with clients or regulators by checking theBackground Affiliation Status Information Center NFA's (BASIC) online.

Test Drive
Once you've found a broker, the next step is to test drive its software by opening a demo account. The availability of demo or virtual trading accounts is something unique to this market and one that you want to exploit to your advantage. Your goal is to learn how to use the trading platform and, while you're doing that, to find the trading platform that suits you best. Most demo accounts have exactly the same functionalities as the live accounts, with real-time market prices. The only difference, of course, is that you are not trading with real money.

Demo trading allows you not only to make sure that you fully understand how to use the trading platform, but also to practice some trading strategies and to make money in the paper account before you move onto a live account funded with real money. In other words, it gives you a chance to get a feel for the FX market. (

Do Your Research
When you trade, you never want to trade impulsively. You need to be able to justify your trades, and the way to find justification is by doing your research. There are many books, newspapers and other publications with information about trading the FX market. When choosing a source to consult, make sure it covers:

The basics of the FX market Technical analysis Key fundamental news and events

Since the FX market is primarily a technically-driven market, the best book that you can read as a new trader is one on technical analysis. The better you get at technical analysis, the better you can trade the FX market from a speculative perspective. (

When it comes to newspapers, seasoned foreign exchange traders typically refer to the Financial Times and the Wall Street Journal simply because they contain international news. Trading FX involves looking beyond mere economics, since politics and geopolitical risks can also affect a currency's trading behavior. Therefore, it's also important to keep up with major non-financial news sources such as the International Herald Tribune and the BBC (online, on TV or on the radio) for the big stories of the day.