After a potential investor has decided to open a forex account and trade on the worldwide market, certain steps have to be taken to participate in forex.
Things to Consider
There are many factors to consider when engaging in forex trading: the amount of leverage a trader can influence during trades, the volatility of the forext markets, and the type of pacing favored by the individual trader.
The amount of leverage on an account will differ, although the standard factor seems to be 50:1. This means that for every $1 a trader has in their account allows them to control up to $50 in trading. Leverage serves as a major benefit of forex trading, as it allows traders to make large gains with a small investment. It needs to be noted, however, that the same risk level that allows the leverage to potentially yield large gains can also create great losses depending on the volatility of the market. Given the circumstances, a trader could lose even more than they’ve invested if market conditions do not remain favorable.
Something that will be favorable, however, is the lack of commissions to trade in forex accounts is that trading within them is done on a commission-free basis. Unlike equity accounts, where a trader has topay the broker a fee for each trade, forex markets allow traders the option of dealing directly with market makers, essentially cutting out the middle man. Potential traders should also recognize that each brokerage firm has different spreads on foreign currency pairs traded through them. Each company will offer different levels of services and programs along with fees above and beyond actual trading costs. Also, due to the less regulated nature of the forex market, it is important to go with a reputable company.
Pick an account
There are two choices here: a personal account or a business (corporate) account. Remember to read the fine print regardless of which account you choose; get into the habit of doing this early.
A trader will have to decide which broker to use. Many firms offer demo accounts that will allow potential traders to find out what working with a given firm will be like. Traders will also be able to consider the option of using a managed account, which would allow a broker to trade for the individual. This may require a larger deposit to start and the broker will take a cut out of any profits earned during the course of trading.
Once a trader decides on a broker, the process enters familiar paperwork territory as they will have to fill out an application that includes some financial questions such as net worth and trade experience. Pay attention to the risk disclosures; forex moves at a fast pace and can be intimidating and financially difficult for beginners.