Part 2: Retail Forex Trading and Basic Requirements for Beginners

Provided by guest contributor Jennifer Gorton from Forex Traders

Retail forex trading is not for the faint of heart.  Market movements come swiftly, as do changes in direction.  Everyone accustomed with this market will always instruct newcomers that specialized training is necessary to survive and trade with some consistency, the objective of every trader.  There are good reasons why forex websites warn against jumping into forex trading without the basic tools necessary for success.  Forex trading involves high risk, and mitigating risk is a paramount goal when trading.

It may surprise you to learn that only a small percentage of forex trades are profitable (5 – 25 % depending on who you ask).  Traders soon find out that losing trades are a fact of life, but because of this high loss rate, their goal then becomes to cut off losers quickly and let winners run.  In this manner one good trade on a favorable trend can offset three bad ones.  There are many facts about retail forex trading that may scare a beginner, but the objective is not to shun investors from this investment field.  It is to warn a newcomer to invest the time up front before putting any of his personal capital at risk.

As with any other investment vehicle, successful investing depends on three cornerstone factors: knowledge, experience, and the ability to control your emotions before, during and after a position is opened and closed.  Sounds simple enough, but most beginners grow impatient with their training regimen, rush into the market without adequate preparation, and soon depart, having lost whatever capital they had devoted to the effort.

Knowledge can be found in books, libraries, and the Internet.  Read as much as you can to acquaint yourself with forex terms, trading methods, money management, and fundamental and technical analysis.  You do not need to be an expert at this point, but you will want to take an Internet forex tutorial or enroll in a forex course or seminar such that you will be able to comprehend fully everything that your instructor or mentor tries to pass along to you.  Accept your “amateur” status.  In every performance-based trade on Earth, an amateur needs to learn the profession from a professional.

Your instructor will tell you how to select a trustworthy forex broker, thereby avoiding the fraudulent ones, and to choose one that offers a free demo trading account.  The broker will give you “virtual” cash to trade using real time trade data, and this is where you accumulate the all-important experience that was mentioned earlier.  Your practice sessions will allow you to test your personal trading strategies, get accustomed to your trading platform and software, learn to use technical analysis to your advantage, and develop confidence and consistency in your abilities before you ever risk one Malaysian Ringgit of your own money.

Your demo account will also allow you to determine what kind of trader you are or whether active trading appeals to your personality or not.  Currencies can be traded over widely varying timeframes, and it is here that you can pick the style that feels right to you.  Day-traders open and close positions during a single day, deal with high stress on a daily basis, and tend to be “Class A” behavior types.  Swing-traders focus on trades that may last for a few days, and long-term traders may elect “carry trade” strategies that can last for weeks, months and even years at a stretch.

Practice trading is extremely important.  No shortcuts allowed.  In Part 3, we will summarize what we have learned and discuss trading psychology and how to maintain emotional control, perhaps the most critical factor to master.

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