The very first lesson you must learn when learning how to invest is that the only “safe” investment is a FDIC insured bank account or CD. It is also important to note that the price of safety is low yields that can barely beat the rate of inflation.
Investing your money in stocks and currencies carries more risk and, along with it, more reward. The key is to fully educate yourself on the basics of investing in the forex market. When you have educated yourself on the fundamentals of foreign exchange investing, you can then practice using a virtual trading account.
These virtual trading exchanges offer you a chance to practice entering orders and checking quotes in order to hone your investing skills. You can also virtually verify your account balance, and keep track of your gains and losses.
Discipline And Research
Discipline is the number one requirement in highly leveraged FX trading, and you should practice realizing gains as well as taking small losses. The amount of time it takes to learn the currency market varies from person to person, but the important thing to remember is to learn at whatever pace suits you best, and fully understand what you are doing before committing any capital.
Learn the similarities between the stock and options market when educating yourself about the foreign exchange market. More than any other, the FX market shows group psychology, although the size and volume of the forex keeps any individual or group of traders from influencing prices.
You should also study the economies and fiscal health of the countries behind the currencies you are interested in investing in before investing any capital. It is also wise to focus on several currencies to see how they relate and react to each other. For example, the Australian dollar reacts to news coming from China, their main trading partner.
Learn The Basics Of Options Trading
You should also educate yourself in the practice of selling options, or a “call” or “put”. These options in the FX market are similar to “puts” and “calls” in the stock market, where an investor buys the option based on their point of view.
If an investor thinks that the euro will rise against the US dollar, he or she would purchase a “call” option. If an investor thinks the the euro will fall against the dollar then they would buy a “put”. It is important to practice selling FX options to learn how to generate income from either transaction.
Run through all of these types of trades in your practice account before committing any capital. Use your practice account and record your gains and losses. When your practice account reflects a net gain consistently, you can begin researching live trading accounts.
Be cautious of forex trading firms that offer high leverage, or access to borrowed money. Leverage offers an investor the ability to control relatively large sums of money, with little upfront capital. While it is understandably tempting to use leverage, it is advised that leverage be used in only certain situations, such as adding to an existing winning position.