People are always looking for a bit of financial security in life. Trading has always been one of the backbones of building wealth. In recent years, with the advance of high speed internet connections the world has become a smaller, better connected experience. No longer is this currency exchange the exclusive domain of central banks, corporations or wealthy individuals. More access has led to the development of the popularity of currency trading, which is known as the Foreign Exchange Market or Forex market. On the surface this is a simple concept to grasp. You buy currencies for a low price and sell them in another market for a higher price. Nothing is as simple as it seems on the surface. This is a beginner’s guide to participating in Forex Trading and hopefully creating value on your initial investment.
Basically there are three distinct types of trading accounts that you can set up in order to practice trading in the Forex market, standard, mini and managed. Each account has its advantages and disadvantages. It depends on your personal situation and your comfort with risk. It is also going to depend on the time you can dedicate to trading on the market each day. Getting advice from an established trading company like AlfaTrade is a great first step in understanding the market.
The standard trading account is one of the more common forms because it allows the account to have trading access to lots of currency which are standard and each is worth $100,000. The rules of margin and leverage allow a trader to participate with in a 100:1 ratio, meaning that $1,000 needs to be in the account margin and that allows a standard lot to be traded. These accounts tend to provide great service from brokers and some great perks for the individual investors. Unfortunately with this type of account, each pip or percentage in point is worth $10 so when a position moves by 100 pips it can cost or gain $1,000. The attraction of Forex is making a lot of money quickly. Unfortunately, if you are not careful the opposite can happen. This type of experience is recommended for those investors with experience and tremendous funding.
The Mini Trading Accounts
These less expensive options are offered by most brokers to entice new customers to partake in the process. The mini trading account is generally equal to one-tenth of a standard account and provide people with a less risky way to get involved in currency trading and gain some experience without the huge risk that a standard account might bring them. It also gives experienced traders the chance to experiment with new strategies without spending a fortune. It takes a low $250-$500 capital requirement to open a mini account. These mini lots make it easier to create and maintain a trading strategy. Of course with lower risk, comes lower reward. They are 1/10th as valuable as a standard account but it is a great method to learn about Forex trading and to develop your skill.
Managed Trading Accounts
These are accounts where you put up all the money for the account but the buy and sell decisions are made by an account manager. Essentially, you are paying for the expertise of someone else in the Forex market and they handle your funds much like a stockbroker handles investments of clients on the stock market. Through communication there is a chance to set profit goals and risk management concerns. An investor can get involved in a pooled account, where money from several investors is used and a percentage equal to the investment is returned. Or there are individual accounts that are strictly using your own money alone. Having a professional handle your account gives you the advantage of experience, it will allow you to make money and not be concentrating on the market. Of course there is always a cost for this experience, and top brokers will have a hefty commission on profits. The good thing is that generally there will be profits. You also won’t be able to individually play hunches or react to market movements that you observe.
Don’t Miss Your Opportunity
Learning to trade in Forex can have a significant learning curve but there are great resources available to you out there and there is no reason why you can’t set up a brokerage account and get started today. Forex is definitely one of the most exciting areas to explore wealth building.