Demo Accounts

• All Forex training should include simulated trading on a demo account. Nearly all Forex brokers provide these accounts, and many do not require you first open a brokerage account with the firm. On a simulator, you trade in real-time using fake capital. You have zero risk while you develop your skills. Enough brokers provide free demo access to their platform that you can easily move from one broker to another after each demo period expires.
  
  

Leverage

• The most significant component of the Forex market is the leverage. Novice traders who do not understand the consequences of high leverage usually expose themselves to unnecessary risk and incur large losses. Leverage is the ability to purchase more assets than your cash balance would normally allow. In the United States, this leverage is usually 50:1, which means that your $2,000 account has access to $100,000 of buying power. But this also means that your losing trades incur the losses of $100,000 account, making your actual percentage losses on a $2,000 account quite large. For this reason, you must minimize the size of your positions, trade with small sums of cash or just simulate until you are completely confident in your strategy.
  
  

Chart Analysis

• The Forex market is highly chart-driven. Forex traders do not have access to easy fundamental information as stock traders. You cannot look up a company's earnings report, study its management practices or analyze corporate debt ratios. You can look at broader economic factors when trading currency, but this information is not as specific and easy to analyze. Thus most currency traders focus on price charts. While chart analysis strategies are innumerable, one simple concept can ensure that you participate in currencies with good odds of success. Using the old analytical techniques of Charles Dow, you look at a chart and compare the recent highs and lows with the previous highs and lows. If each subsequent high reaches a higher peak, and each low is also higher than the previous low, you have a trending currency. Avoid currencies that do not trend, and buy into those that do. This simple beginning strategy can keep you out of highly volatile markets. It focuses you on price movement that usually moves in your favor.
  
  

Warning

• Most novice Forex traders fail to grasp the risks of this market. Here is a quick example. If you spend only $500 on a trade with an exchange rate of 2.501, then the leverage provides you with approximately 10,000 units of this currency. If the exchange rate moves by just half a penny, to 2.496, this is a $50 loss, or a 10 percent loss on your trade size. And such a move can happen in just seconds. For this reason, you must trade with funds you cannot afford lose.