Before you start

Before you start

Hello and welcome to my blog

I have decided to start this blog to give some advices and record some of my experiences about the exciting world of the Foreign Exchange or Forex as most people friendly call it.

The concept of what we do once we start trading in the Forex market is very basic, we exchange a lot of a currency pair, for example Euros and US Dollars (the famous EUR/USD as it’s abbreviated), you can decide whether to buy or sell and if the market moves in your favor at the moment of closing the operation you can obtain some profit from the variation in the exchange rate, and of course if things go in the opposite way you can end up with some loss. Hence the common warning you can see on most Forex Brokers’ sites, I think it’s the moment for the first rule of Forex Trading: “never invest money you can’t afford to lose” if you follow it then you’ll have fun, else probably you’ll regret it later.

Of course if you ever seen the exchange rates move throughout the day, you would have noticed they don’t really move too much, so even though in theory you can go to your local bank and exchange some money and profit from it; it doesn’t work as efficiently as with a Forex Broker because then you can win or lose money from the movement of the pips.

And what are the pips? You may ask. Oh fellow trader the pips are the smallest scale in which a currency pair can move, going back to the EUR/USD pair in this exact moment you can exchange 1€ for 1.32 $us, fair enough but now let’s look closely at the pips, and you’ll observe that there are tiny movements and he exchange rate is actually 1.3224 now that’s the pip a unit that, depending on the currency pair, can move around 1/100 of one percent, very small right? But you’ll also notice that some brokers even offer you a 5^th decimal and becomes something like 1.32211 see? In the few seconds that it took me to write those two numbers the pips changed from 1.3224 to 1.32211.

Of course if you decided to buy a Dollar (i.e. sell Euros) the profit would have been 0.003 not even a cent! So that’s why to turn it into a respectable profit you have two options, one invest a lot of money so let’s say if we had used 100,000 bucks, we’d had now 30 dollars in less than a minute, that’s how fast it can go. But of course not everybody has that amount to be investing freely in the Forex market so often Forex Brokers offer you to multiply your money so you can pretend you’re moving large amounts of money at the end they don’t lose because you have to pay either you win or lose. So let’s say, you don’t have 100,000 but you have 1,000 and they offer you a leverage of 1:100 to turn your money into 100,000, you could have won the 30 bucks or lost them in the same way, that’s why the leverage can be your friend or your worst enemy if you don’t use it wisely.

If you’re wondering now, why these people are so nice? They just lend you millions for you to play and pretend to be a millionaire? Well no, everybody gets some benefit here. You can invest more than you actually have and therefore aim to bigger profits (or lose miserably) and they get their income from the spreads, I have to say while reading about Forex when I was just starting I noticed most authors just ignore completely the spreads while explaining how to trade, but I strongly believe that the spreads are one of the things you have to take into consideration while choosing a broker and also at the moment of making any operation.

The spreads are the difference between the bid and ask prices of a determined pair. Coming back to the EUR/USD the ask price is 1.32198 while the bid price is 1.322211 of course that changes between brokers, but it means that if you decide to put a sell order at 1.32198 now, the bid price has to go down 0.000231 so you can start winning some, so basically you start losing by default and your analysis has to take that spread into account and at the moment of putting any order your expected profit should cover that spread, and the spread is what pay the brokers’ bills. Some brokers have a floating spread that changes throughout the day and some offer you a fix rate also take that into account at the moment of choosing a broker.

If by now you understood what is it about, and you’re ready to start then I recommend you to browse online and search for some brokers. It has become almost a standard for them to offer you a Demo Account, where you can, not just practice with fake money but also compare spreads, the service, the procedures, the options they have and make your decision to whether do businesses with a particular company or move on. Finally the moment you feel ready to start dealing with real money and you want to open a Live Account, make sure you have a scanned (or very clear photo) of your documents, you’ll need an identity proof (id card, passport, etc.) and a residency proof (utility bill, bank statement, taxes etc.) something with your name of course that proves the broker that you live where you said you live, they will probably also check your number with a casual call so also make sure to answer them. Those are the regulation rules so most brokers would ask you for that, if they do not, then probably they aren’t under regulation which is definitely a risky thing to do, always check under which regulator they are working of which country; some have more than one and also check not only on the website page but also on the regulator page, you can find more information whether the broker had any problem in the past so it’d be a wise thing to do before putting your money under their hands.

Additionally some brokers ask you for more proofs, such as a copy of your credit card or payment system, of course never send them the full copy so they can see your credit card number, you can always have the right to cover any sensitive information so you can edit the image so only your name and the last 4 numbers show up, also with the bank statement if you’re not comfortable with sharing how much do you have, you’re free to obscure that part. And others may require you to present a legalized copy of your documents and that legalization must be done by a national entity so always make sure to read in the FAQ or Terms of Service all you need before even starting the procedure of registration, once it’s all approved you’re ready to make your own deposit and start dealing with real money and perhaps have a new source of income.