What is Forex Trading?

You can see it as the trading of different currencies. For instance, let's say you decide to go on vacation from South Africa to the USA. You have to take some dollars with you so you go to the bank and take your Rands in exchange for Dollars. 

At the time of buying the dollars the exchange rate is 7 to 1. For every R7 you sell you get $1. Let's say you bought $1000, at the exchange rate given you have to sell R7000. You go on holiday and spend let's say $900. 

When you return, you trade the dollars back to rands. While you were away, the rand weakened to 8 to 1. So instead of getting only R700 you now get R800 cause the exchange rate is now 8 to 1. So you actually got a R100 more. You have just traded forex without really knowing it. 

Easy hey. Well not really. You just got lucky. But basically that's what forex trading is all about. You buy and sell different currencies and hope they either weaken or strengthen against each other. You don't have to physically travel to different countries exchanging money instead you work through organization called a broker. 

You basically put money in your account at the broker and they trade on behalf of you with your money. You just tell them what to trade, and they do it. Sounds simple, doesn't it. I did not even talk about spreads, leverage or lot sizes. These are all things that you need to keep in mind before you just jump in and start Forex trading.

A word of warning here. Lots of brokers advertise how you can make easy money and get rich. The truth is, is not that easy. I realized this the hard way. I'm not a seasoned trader like some out there, so I'm hardly one that can give out trading advise, but I have done my research and I've burnt my fingers. 

I can give you some tips here, but ultimately you have to do your own research and get to know the world of forex trading before you start trading live.

I'm not even going to try and explain everything about forex trading on my website. It's just to much. Have a look at my tips and visit a website called babypips.com. They have an excellent course on forex trading and the best of all is, it's free.

Here are some tips:
  • Tip 1 - Learn as much of forex trading as you can. Get to know the basics first. A good place to start is a website called, babypips. Go there and go through, what they call, School of Pipsology.   They take you from the basics of forex trading to more advanced topics. Before I discovered this website I used to buy a course and  babypips was actually better than the course I bought. 
  • Tip 2 - Before buying any trading system or forex robot, go to a website called forexpeacearmy and see if they have a review about the system or robot. They also review brokers. Keep in mind that a lot of reviewers slam brokers and systems because they traded it incorrectly and give bad reviews. After spending some time on the site you will get a feeling about whats hot and whats not. 
  • Tip 3 - Demo trade at least one year or until you know your system works before going live. I made a huge mistake in going live before I had tested my system thoroughly. I burnt my fingers big time. Don't make the same mistake I made. Most brokers offer a demo account for an unlimited amount of time. I use IamFX and Diverse FX. They offer a demo account that you can take your time with. But there are others, of course. Do your research.
  • Tip 4 - Never trade with money you cannot afford to loose. It breaks my heart to see poor people in casino's wasting their money on a dream that will never happen. I'm not comparing forex trading to gambling, but if you start to trade forex with money that is destined to paying the bills, you are gambling. There is so much more pressure now to win some money, that you will start to take chances, and that's when you will start to loose.
  • Tip 5 - Use a good broker. This is a difficult one. There are a lot of dodgy brokers out there. I use Diverse FX because they have different options that you can use to trade forex. You can either let them trade for you on one of your accounts or you can manage your own account by buying their expert adviser. What I like about this is that you can try the EA for free for a one month period and if it works, you can buy the EA and this will place the trades for you. On my "Do Forex Robots or EA's really work?" page, one of my suggestions is that  you first try an EA before you buy it and these guy do just that!  
These are just a couple of tips. Keep in mind that Forex trading is risky and you should do your due diligence before trading forex.

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