Trying Out a Forex Demo Account

First what is Forex: The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.

The Forex, or foreign currency exchange, is all about money. Money from all over the world is bought, sold and traded. On the Forex, anyone can buy and sell currency and with possibly come out ahead in the end. When dealing with the foreign currency exchange, it is possible to buy the currency of one country, sell it and make a profit. For example, a broker might buy a Japanese yen when the yen to dollar ratio increases, then sell the yens and buy back American dollars for a profit.

To determine if Forex trading is truly for you, trying out a Forex demo account is the way to go. It is a method used by thousands of potential Forex traders and investors to determine if forex trading is for them. A demo account allows an interested person to go online and see how an account would work Without investing and risking any real money. An investor pretends to have money in an account and buys and sells the same way it would be done in reality. The software used for these demo accounts is very realistic, and generally a person is able to see at the end of the day if they would have lost or gained money if the transactions had been real.

Here's an example. An investor pretends to have a margin account with ten thousand dollars in it. He looks closely at the currency markets and believes that the dollar will go up in value against the yen. The demo account allows him to buy at a ten to one margin, so he buys (in the program) one hundred thousand dollars of dollars and sells one hundred thousand dollars of yen. There will be a spread, or difference, which amounts to the pretend profit.

A demo account allows one to son is found to be because it is always much safer to learn how to do this sort of thing without having actual money at risk. The same principle applies when kids in driver’s education classes sit in demonstrator modules that resemble real autos. They are able to practice driving without taking risk. They maintain heir safety while they build their skills, knowledge and confidence. Pilots follow this idea also by using flight simulators. You would never think of flying an airplane unless sufficient time had been spent in a flight simulator first. The same holds true for forex trading. Spending time with a demo account allows the potential trader to gain skills and learn the ins and outs of the game and the market place. A person is then able to see if they truly have the instincts necessary for the market and have sufficient knowledge to “play with the big boys.”

Most brokerage companies involved in Forex trading have demo accounts available, sometimes free and sometimes for a small fee. Even if a fee is paid, it is usually worth it because a Forex trader can parlay his skills and knowledge into vast profits after spending some time practicing with the Forex demo account. A demo account can be set up quickly through a broker. A trader with an interest in setting up a Forex demo account can also go online and find a vast array of companies ready, willing and able to help the student trader set up an account and enhance his/her skills. Learning what you are doing is always smart, no matter what game you are playing, and Forex trading can certainly be seen as an advanced financial game.

A demo account is the way to go if there's any hesitation, After months of study of the Forex market one might be convinced that he could make a go of it as a day trader in the Forex market. His wife, however, may not be as convinced or confident and may be a little bit more risk inclined. Going to an online brokerage company is the best next step. Setting up a demo Forex account will allow one to make trades as though he were using real money. After several days, on paper, he might find that he's made a consistent profit. As he learned and as his confidence increased he became even more anxious to open a real Forex account and invest his money. His wife also saw how on paper he had made a nice profit and relaxed. Real Forex trading was the next step.

By using a demo account one can learn enough to go foreword and open a true account and become an active trader.

The Forex Market and Its Three Distinctive Elements

Although there are many distinctive elements of the Forex market, there are three that can be highlighted as helping new traders learn exactly what the foreign exchange market is all about. These distinctive elements are those that every new trader should know long before they make their first trade. The Forex system is one that is made to encompass the entire globe. It can be difficult to interpret and even more difficult to successfully trade within. The first step to being a successful trader is knowing how the system works. Before you even think about opening a Forex account, be sure that you are familiar with the foreign exchange market’s three distinctive elements: geographical, functional, and participant.

Geographical

The Forex is a huge market that encompasses the entire globe. This is a market that spans from North America to Europe, to China, and back. There is no area it doesn’t touch which makes the market so popular. There is simply something for everyone within the Forex market. Its easy 24 hour a day access makes it even more attractive for investors. No matter what time of day you want to trade, there will be someone trading in some distant location around the world. Although there is trading in the Forex in every corner of the globe, the major exchanges are Singapore, Hong Kong, Tokyo, Bahrain, London, New York, San Francisco, and Sydney. The geographical element of the foreign exchange market can help new traders realize the size and volume of the Forex. It is simply unmatched in volume and size making it a powerful tool for investors everywhere.

Functional

The entire Forex market functions to transfer purchasing power between countries. When trades are made, partners are converting currency revenues into their domestic currency. When one country’s purchasing power is strong, another country’s purchasing power may be weaker. The Forex market also functions to obtain and provide credit for international trade and to avoid an exchange rate disaster. When it comes to international trade, the Forex is helpful because it helps the movement of goods between countries and offers credit for financing.

Participant

There are two main parts to the foreign exchange market. The first part is the interbank, which is often called the wholesale market. The second part is the client, which is often called the retail market. In these two categories are approximately five different types of participants. The first type of participant being the bank and non-bank foreign exchange dealers who buy at bid prices and sell at asking prices. This helps the efficiency of the market as a whole. An interesting thing to note is that by trading currencies, banks often make up to 20% of their profits.

The second type of participants is made up of individuals, and commercial and investment firms. This group consists of importers, exporters, tourists, and other portfolio investors. They use the market to help them invest. These are often the participants who use the Forex to hedge, which is a way to reduce their risk.

The third group type that seeks to profit from the foreign exchange market are s speculators and arbitragers. These people are out to make money for themselves. They are acting in their own self-interest. They seek profitable rate changes in order to help them profit and try to profit with the least possible risk involved. Large banks are sometimes a part of this group.

Also involved in the Froex are central banks and treasuries. They use it to change the value of their own currency, or to at least attempt to do so. This is something that they do with reserves. Their motive is not to profit but to influence the market. They want the value of their domestic currency to benefit their interests.

Foreign exchange brokers are the last of the five groups involved in the participant element of the Forex. These participants are those who facilitate trading but are not partners in the transaction. They typically charge a fee for their service, which is most often on a commission scale. They are often seen as go betweens for large traders.

FOREX: Starting your own trading

The presented article is intended for those who just turned their eyes toward FOREX. Beginning traders who are still learning the basics of the foreign exchange market may also find something of interest here. While experienced traders won’t gain anything worth their time reading this article.

Basically there are 4 steps which can be defined as “must do“ for those who wish to start trading FOREX. Though, their order is not particularly important, the more important part is their content, to which the great attention and responsibility must be paid.

First step is finding a right FOREX broker which will be your main tool in trading. You can have a great strategy, good technical analysis skills or an outstanding intuition but you will eventually fail if you choose a bad broker. A good FOREX broker is one that will not still your money, will be doing real trading with your positions, supports your preferred deposit/withdraw methods and has fast and helpful user support service. It is nice if a broker is registered with some sort of governmental financial commission. One of the most important aspects of the broker is it’s trading platform – but for a new trader this part is not so important as for expert traders. Still you’ll probably want to trade with some powerful and informative platform as a MetaTrader or its analogs. For new traders the more important is a demo account which can be used to trade virtual money while you are training your FOREX skills. If you are new trader, start only with the demo account! Don’t lose your money on your first mistakes!

Second step is learning the basics of FOREX trading. If you already found your FOREX broker, you will easily get all information from its website or user support. There are many articles and websites dedicated to FOREX basics in the World Wide Web. All you need to do is just google for “forex trading basics” and you’ll find everything you wanted and even more. This step shouldn’t be underestimated, because trying to trade without even understanding how the market works is not only very risky, it will also become boring very soon.

Third step is about education. FOREX trading education is not similar to any other education you probably have got in your life. FOREX market is very chaotic, so is the education – there are no fixed rules and all time laws, it is unstable and dynamical. So, to be on the top you must learn new things about FOREX regularly and constantly. Try to read as many books, articles other traders’ opinions as you can. The more you learn, the more educated you will be. And with good FOREX education you will be able to create very sophisticated and effective trading strategies.

Fourth step is a final one; at least I consider it to be a final one. To achieve the successful results in the FOREX market you need to develop your own strategies. While you are learning you’ll be satisfied with known strategies and probably even FOREX signals. But true goal which leads to successful FOREX trading is to develop your own strategies. Not one strategy, but to follow the market day by day, developing new strategies and improving those which began to fail. And this comes not only to the trading strategy (this part is obvious), but also to the money management strategy (this part is often underestimated). While you gain experience in trading you’ll inevitably build such strategies that will fit your trading style, you character and your life as best as they can. And after that, trading will become a real pleasure, which will eventually lead to your financial freedom.