The forex market is the most liquid and risky business on the face of the earth. In a single market day, over $5 trillion dollars changes hands on this global marketplace. For this reason, many people are attracted to it all in the hope of making a fortune from the trade.
However, this market is marked with extreme risks. Whenever there is a winner, somebody somewhere is making a loss. In fact, every day, millions of people make losses trading forex. Therefore, it is prudent to tread with care whenever you’re trading forex, lest you blow your account.
The good news is, you can start trading forex with as little as $100. Some brokers will even make minimum deposits as low as $1. However, whether you’re starting with $100 or $100,000, the rules are the same. You will need to follow the following simple steps if you wish to find any success in this market.
1. Do your research
This is arguably the most important step. Basically, the more you know, the better your chances are of making a winning trade. You need to be familiar with all the currency pairs, both majors and minors. From there, you will need to know the factors that affect the prices of these currencies. This will be vital if you’re ever going to predict the future prices of these currencies.
Further, you will need to learn how to read and analyze price charts. This includes spotting patterns on the charts and deducing their meaning. The good news is most brokerage platforms will contain multiples of educational materials that will help you gain familiarity with the different aspects of the market.
To effectively predict price movements, you will need to learn two forms of analysis – fundamental and technical analysis.
This analytical method focuses on the impact of economic news on a country’s currency. For this, you will need to pay particular attention to the state of the country’s economy whose currency you intend to trade, compared to the country whose currency it is quoted against.
The state of a nation’s economy can be deduced from a number of data points that are released regularly. Such data points include the GDP, the CPI, employment data, and other major news events. Such data can be found on the economic calendar available for free online.
Fundamental analysis helps predict long-term price trends and can also shed light on short-term price movements after news releases.
This analytical approach involves using chart patterns and technical indicators to analyze currency price charts. This analysis sheds light on the relationship between demand and supply at any particular price point. As in any economic situation, demand and supply are the driving forces behind price movements.
Familiar chart patterns can help you predict the most likely next market move. Further, you can utilize several indicators to predict short-term and long-term trends in the market. Such indicators include the RSI, Stochastics, MACD, Moving Averages, Bollinger bands, just to mention but a few.
Additionally, trading volumes can help forecast price moves. There’s a popular saying that volume precedes price, and with the proper knowledge, you can produce accurate signals in the market. Support and resistance levels are other phenomena that can help you predict market psychology at specific price levels.
2. Try a demo account
Once you’re familiar with the nitty-gritty of forex trading, it is time to put your skills to the test. A demo account gives you access to real market conditions without requiring you to put down an initial deposit. This account helps you familiarize yourself with the different indicators and analysis techniques. This way, you can work on optimizing your trading strategy until you come up with a trading plan.
Additionally, if your broker supports the Meta Trader platforms, you can utilize expert advisers (EAs) in your trading. Also known as forex robots, EAs are automated programs that take on a set of instructions and spot trading opportunities even when you’re not actively studying the markets. Some of these robots will also execute trades for you if you so wish. All you would need to do is define your strategy, and the robot executes trades that meet your criteria.
A demo account will also help you develop the right mindset for forex trading. It will help you deal with losses and avoid emotional trading, which has led many traders to losses.
3. Fund your $100 into a live account
Once you’ve proven the viability of your trading plan on a demo account, you’re now ready to dip your foot in the live market. This market will have all the makings of the demo account, but you will now stand to make real profits and/or losses. Due to this, you may experience much more enhanced emotional reactions, but you’ll need to always keep a clear head.
However, you should not trade with $100 if, by doing so, you’re risking your livelihood. In fact, you should only trade with such an amount that you can afford to lose. Even the most seasoned of traders make profits at most 70% of the time, which tells you that you are guaranteed to lose at one point or another. If you can’t afford $100, you can always start with a smaller amount or wait until you’ve saved up enough.
It would also be wise to stick to one pair if you’re a beginner. The best pair to start with is the EURUSD since there is no shortage of information on both markets. Additionally, it has high liquidity and boasts the tightest spreads due to its popularity. As you grow your account, it is also important to live within your means. Never invest more than you’re comfortable handling.
In as much as you can make a fortune trading forex, there are numerous risks associated with trading. For that reason, before you invest, you should do your due diligence to develop all the necessary skills. After developing a strategy, you should first test it on a demo account until you’re satisfied with its results. From that point, you can invest your $100, and with strict discipline, you will gradually grow your account to untold heights.