Is Forex Trading Right for You? Here’s What Traders Should Know Before Starting
Are you a young forex trader looking to grow your bank account? Trading on the currency market can be rewarding, but it involves risk. The plain truth is that many young traders lose money at the outset. As a result, new traders need to make two considerations: never use money you can’t afford to lose and go into the process with your eyes open.
What Does Forex Actually Mean in the US?
Forex is short for “foreign exchange,” meaning the foreign exchange market where currencies are traded. The forex market is decentralized in many parts of the world, so traders deal with one another directly and without a central authority. In the US, the forex market is highly regulated, and participants can only trade in spot currencies (i.e., currency pairs are bought and sold immediately, or on the spot, at the current exchange rate).
As an example, let’s say you want to trade the euro against the US dollar using CompareForexBrokers.com to find a suitable broker to facilitate the transaction. American traders will be subject to certain leverage limits, while all trades will occur within regulatory frameworks such as the CFTC and the NFA.
Trading Costs Can Add Up, So Be Careful
It can’t be stressed enough: get to know the fee schedule before you start making trades. Fees and costs vary between brokers, so careful selection is a must. For instance, OANDA is a low-spread broker that keeps trading costs manageable by minimizing the difference between the buy and sell prices (the spread). Going back to the EUR/USD example we used earlier, OANDA’s spread is around 1.4 pips (percentage in point, or the amount a currency’s exchange rate can move).
As for other fees, OANDA offers free deposits and withdrawals via debit cards and ACH. There are a couple of caveats to be aware of, however. If your OANDA account remains inactive for 12 months, the company will deduct 20 units of currency every month.
The good news is that most serious brokers provide demo accounts, which let traders learn the basics in a risk-free environment (and hands-on learning is always better than videos and online guides).
You can also access free trading tools on most platforms. For example, OANDA offers free TradingView integration and a free Premium Upgrade for MetaTrader 4.
Getting Serious About Your Trades
Once you get your feet under you and feel comfortable trading for real, consider automation strategies. In fact, most of the younger traders take this approach rather than manually managing their trades. This is where a coding background could come in handy, especially with OANDA’s US Forex API. OANDA’s API provides both live and historical prices, along with other features that can be integrated into your automation strategy.
If you plan to approach trading aggressively, volume rebate programs are available. Keep in mind that these programs cater to high-volume traders and have a minimum volume threshold to qualify for rebates, such as the $10 million a month you’ll need to become an Elite Trader with OANDA.
Slow, Steady, and Cautious: The Right Way to Trade Forex
I’m not going to say that forex will quickly and easily make you rich, because that isn’t accurate. And if someone presents it as a way to gain wealth swiftly with little risk, they aren’t being honest about the big picture. By trading an amount you’re comfortable with and learning the ropes slowly, you will gain knowledge about markets and be in a better position to trade successfully.
Photo by Marga Santoso; Unsplash
