Foreign currency exchange (Forex) is a large, international electronic market where traders speculate on the value of currency. Forex is popular with traders because it does not require a minimum balance for active day trading, which contrasts with the stock market. Additionally, the Forex market is open 24 hours, which enables those new to trading to engage the market at any time. Nearly anyone can join the Forex market. Specific brokerage accounts are required, and some steps can ensure that you join the Forex market in the most suitable manner for your desired risk tolerance and experience level.
Identify a Forex broker you wish to consider. There are hundreds of Forex brokers available, and all the reputable ones offer free demo accounts to prospective clients. This is an important part of the process of joining the Forex market. If a broker does not provide a demo, skip it and look at another.
Open a demo account with the broker of your choice. While many brokers provide this service, it is recommended that you open only one demo account at a time. Most demo accounts are fully funded with fake capital and provide access for two to four weeks.
Download and install the Forex trading software for the broker you will demo. Open the program after installation and begin trading at any time. The market is open 24 hours a day, so you will see prices fluctuate immediately.
Trade currency in the Forex demo account. This serves two important purposes. It offers you an opportunity to develop trading skills before committing real money. This is essential for traders who are new to Forex. Secondly, you can asses the broker's trading platform and features to see if they meet your needs. All Forex platforms are proprietary, and each broker offers different software. As you try different platforms, you will quickly see which interface is easiest for you to use.
Open demo accounts with other Forex brokers as needed after your simulation account expires. You can realistically continue to try different Forex brokers for many months before opening a real account. This may be necessary for new traders who need experience simulating before deciding if the Forex market is right for them.
Identify a broker that offers the kind of leverage your require once you are ready to open a real account. A standard brokerage account requires that all trades include a minimum of 100,000 units of the traded currency. This requires considerable capital. A "mini" Forex account reduces this amount to 10,000 units, while a "micro" Forex account requires only 1 percent the trade size and startup capital. Micro Forex accounts are relatively safe and can be opened for only $25 in some cases. You may choose the broker you most enjoy from your simulation experience or one that meets your minimum risk requirements before opening a real account under your name.
Sign up for an account using the broker's online application. This process takes only minutes.
Fund the account once the application is approved and account is opened.
Download and install that broker's trading software if you do not already have it on your system. You have now joined the Forex market and are ready to participate in currency trading using real money.
Determine your desired level of risk carefully. Forex trading is highly leveraged. This means that traders can purchase much more currency for their accounts than their actual cash balance allows using the standard exchange rate. High leverage is required to meaningfully profit from small fluctuations in exchange rates. But some accounts offer lower minimum trades sizes than others. This may not be a consideration when simulating, but once real money is on the line, you will not want to risk any more capital than necessary for your risk tolerance.
- Determine your desired level of risk carefully. Forex trading is highly leveraged. This means that traders can purchase much more currency for their accounts than their actual cash balance allows using the standard exchange rate. High leverage is required to meaningfully profit from small fluctuations in exchange rates. But some accounts offer lower minimum trades sizes than others. This may not be a consideration when simulating, but once real money is on the line, you will not want to risk any more capital than necessary for your risk tolerance.
James Highland started writing professionally in 1998. He has written for the New York Institute of Finance and Chron.com. He has an extensive background in financial investing and has taught computer programming courses for two New York companies. He has a Bachelor of Arts in film production from Indiana University.