So you want to be a trader? Before reading anything else, understand that this journey will be hard won, and it’s not a way to get rich quick. The reason these points are being stressed is because of the negative stereotypes surrounding FX trading and active trading of any financial instrument in general. Here’s the down and dirty of how to get started:
Forex trading is heavily reliant on data from economies around the world so it’s important to stay relevant if you choose to trade forex. The market news can change the market rapidly, you need to know when scheduled announcements are coming.
Here’s the options
Free News Websites
www.chartlab.io – News, Editorials, Education
www.forexlive.com – Daily live news, analysis and resources
www.financemagnates.com – FX industry news and updates
www.fxstreet.com – Daily news, analysis and resources
If you’re after the best forex education then look no further than the chart lab forex trading course. All of our strategies are statistically driven, refined and will give you the best chance to succeed in trading forex.
News Wires – Expensive. Live text based news service. Nearly instantaneous updates during news events. Be aware that multiple fundamentals traders have told us that you need more than one feed… in case there is one agency getting the scoop on others, you could be trading late news if you had access to only one, which could cost you money.
Bloomberg Terminal (https://www.bloomberg.com/professional/): Price is estimated at USD $20,000/yr
Reuters Eikon (http://financial.thomsonreuters.com/en/products/tools-applications/trading-investment-tools/eikon-trading-software.html): Price is estimated to be $3,600-$22,000/yr depending on set up
Dow Jones NewsWire (http://www.dowjones.com/products/dj-news/): Price is estimated at $1,440 per year.
MNI Mainwire (https://mninews.marketnews.com/product-info/mni-main-wire): Unknown cost…however is known to be “massive” as compared to Bloomberg (which is $20K/yr)
Squawk Services – Typically cheaper than newswires. Live running commentary on news events. Slight delay compared to wires.
Twitter (www.twitter.com): It’s Free!…. Do not forget about twitter – an emerging force in news. WARNING – Twitter, due to it not being a news feed, is prone to crowd-sourced rumor-mongering. You are vulnerable to this. So while the Twitter offers instantaneous “news”, this can be buried in hopes, dreams, and BS. That 4-5 second delay from the newswires comes with them verifying the news. You get what you pay for, trader.
WE’RE NOT RECOMMENDING ANY BROKERS. YOU ARE RESPONSIBLE FOR DUE DILIGENCE. FOREX CARRIES SUBSTANTIAL RISK INCLUDING TOTAL LOSS OF FUNDS, WEALTH, SELF RESPECT, AND POTENTIALLY LIFE AFTER BECOMING SUICIDAL. REVIEWS ARE SOLELY FOR YOUR READING PLEASURE; DO YOUR HOMEWORK, TRADER..
There are many factors to consider when choosing a broker. Regulations typically force US traders to only trade at US brokerages, while non-US based traders have more choice. After considering location you need to consider how much capital you will start trading with as many have minimum deposit levels. Once you’ve narrowed that down you can compared spreads and execution. ECN brokers execute your orders straight through to their liquidity providers, while market maker brokers may pair up your trades with other clients. Market maker brokers typically will partially hedge your positions on the interbank market. Many consider this to be a conflict of interest and prefer to trade at an ECN broker who would have an active motive to see you succeed. Lastly, brokers run inherently risky business models so it is important to consider the risk of bankruptcy.
www.myfxbook.com/forex-broker-spreads – Live comparison of executable spreads
UNITED STATES BASED TRADERS
Brokerages for US traders are tough to find. Heavy regulation by the governing bodies of the CFTC and the NFA mean that US traders are limited to:
- 50:1 leverage on the majors
- 20:1 on exotics
- Not allowed to trade commodities like gold or oil (XAU and WTI) on margin and,
- Specified Capital and margin requirements which generally mean that you aren’t getting true 50:1.
The most odious part of this regulation is that which we, the retail trader, do not see: paperwork for the broker. In order to not face the wrath of the the US government, any broker, worldwide, that wants US clients, must comply. Inherently, there are few brokers available for US traders. Be cautious as you can find foreign corporations (usually based in Cyprus or the Caribbean but not limited to those areas) who will take your money. Remember that if you sign up with one of these groups, your money is not protected by the US Government.
–ThinkOrSwim / TD Ameritrade https://www.thinkorswim.com
- Execution Type: Market Making / Dealing Desk operation.
- Min Deposit: $2000
- Platforms: “Thinkorswim”
- Notes: Company and platform was originally built for options traders, and provides brokerage services for equities and derivatives as well. Offers commission and marked up spread based pricing options.
INTERNATIONAL BASED TRADERS
EUROPEAN (EU) BASED TRADERS: ON 27 MAR 2018 the European Securities and Markets Authority (ESMA) placed new restrictions on spot FX trading. They are as follows:
- Maximum leverage of 30:1 on FX Major Pairs
- Maximum leverage of 20:1 pn FX Minor Pairs as well as Gold
- Maximum leverage of 10:1 on commodities
- Maximum leverage of 5:1 on indices
- Maximum leverage of 2:1 on cryptos
Along with various other regulations. Read Here
–IC Markets http://icmarkets.com/
- Multi-language interface
- Spreads considered “Tight” review: “(I’ve seen them go negative).”
- This is primarily an ECN broker, although they do offer minimum spread accounts too. With commissions included the ECN accounts are usually around the top of the Myfxbook broker spreads chart. With a rebate IB and/or cTrader rather than MT4, you can get costs down a little further still.
- Minimum Deposit required $200 USD
- Based in Australia.
- Max leverage 1:500
- If you care about latency, their MT4 servers are in Equinix NY while their cTrader servers are in London.
- Primarily English but has multi-language
- Has both ECN (Their “Razor” account) and STP (“Standard” account)
- Spreads considered reasonable
- Customer service- “Good customer service so far. Gave me a personal phone call when I signed up for a demo and another after creating a live account. Also you have to take a multi-choice test before they will allow you to create a live account (only if you admit to being a new trader).”
- Sends weekly emails with breakdowns and forecasts + news events.
- $200 minimum deposit, min $100 afterwards.
- Based in Australia.
- 500:1 (it was dialed back during brexxit but was put back up soon afterwards)
- Has android + iphone app. Not the most stable platform during large news events but its being actively improved.
- Uses their own variant of cTrader and MT4 platforms.
- Recently started adding hard and soft commodities to their symbols. Apparently added more crosses and exotics too.
- Has Islamic accounts (swap free)
- can trade microlots (1,000 units)
- has access to cAlgo, which is a c# based platform for algorithmic trading, backtesting. Quite a learning curve but quite advanced.
- English but has multi language interface
- True ECN
- Spreads considered “good” by the community
- Based in Switzerland
- Minimum USD$5,000 with Dukascopy Bank SA (but apparantly minimum $100 with Dukascopy Europe… more to come)
- Allows down to Microlots (1K units)
- 200:1 max (300:1 max for Dukascopy Europe)
–Interactive Brokers https://www.interactivebrokers.com/en/index.php?f=759
- English with multilingual support
- “ECN like structure” which likely means dual ECN/MM playbooking
- Spreads considered fair but has commisions / pro traders love this company
- US based, but due to new CFTC/NFA regulations, US traders are not welcome anymore…
- Minimum deposit for margin is $10,000
- Max Leverage appears to be 50:1, talk to the desk
- Charting program has been viewed as “clunky”
- One of the oldest ECNs in existance
- Huge, well capitalized
- Spreads rated as good
- UK Based
RISK MANAGEMENT PRIMER
It is simple: you need to protect your money, and you are not going to get rich overnight. The temptation of Forex is that the insane leverage offered, as well as gambler’s math, leads almost all new traders to think that they can turn $100 into $1,000,000 in one year. Theoretically this is possible… but then again, theoretically it’s possible you’ll hit the lottery. The odds are about the same (actually, your odds of hitting the Mega jackpot or the Powerball are probably better). In reality, growing your taco money to seven figures in one year DOES. NOT. HAPPEN. Inherently, you need to have a system of risk management that involves stop loss usage and a formula to calculate position size. The rookie error is to think the following:
(ACCOUNT SIZE) x (MAX LEVERAGE) = POSITION SIZE.
DO NOT DO THIS. You will lose everything, and likely not be able to recover… this is gambling. Instead, stop size and risk allowance determine position size.
The general rule is that you should risk 1-4% of your account on any given trade. Now, you can leverage the entire amount, but your stop should reflect 1% of that. How to calculate this? Use this formula:
(ACCOUNT BALANCE/100) / (STOP LOSS IN #OF PIPS) = (POSITION VALUE)
“Position value” is going to be a dollar number… which you then use to figure out how many lots/mini lots/micro lots your position will be. In order to do this, you need to use a pip calculator. In the first bracket, you divide by 100 for 1%, 50 for 2%, 33 for ~3%, and 25 for 4%.
EXAMPLE: you have a $1,000 dollar account. You are placing a trade on EUR/USD. Your analysis determines that your stop is 20 pips. X is position value.
(1,000/100) / 20 = X
10 / 20 = X
What is 0.5? The value per pip of your position. Looking at our calculator, this shows us a position of 5,000 units. This means that you are using 5:1 leverage on your $1,000 account. This won’t sound appetizing at first (“Hey man, I can leverage 50X and get 10x the reward!”)….. but then again, losing your whole nest egg in one shot should sound stomach turning as well.
I AM CONFUSED ABOUT THIS – HOW CAN I GET CURRENCY XXX IF I’M TRADING YYY/ZZZ??
This confuses many new traders. When you create your FX account, you will be nominating what the base currency is, this is usually the currency where you live. Live in the United States? USD. Live in Canada? CAD. Live in Tokyo? JPY. Live in The EU? EUR and so on…. That is the currency that all trades will be paid out in.
The pairs that you trade have no bearing on this outcome. It may help to think of it in this way: “I am going long / going short on the asset known as USD/JPY and will be paid out in my base currency.” Don’t look at the pair you are trading as multiple exchanges, look at it as a single vehicle, this may help you.
Related questions we get often:
I NEED TO EXCHANGE MONEY, HOW DO I DO IT?
Forex trading won’t do this for you. Your best bet is using your bank or an online exchange service. Be prepared to pay a hefty fee.
I HAVE MONEY IN ONE CURRENCY, AND NEED TO CHANGE TO A DIFFERENT ONE FOR REASONS, IS NOW A GOOD TIME?
Don’t ask us this. We speculate intraday in FX and shouldn’t be relied on to tell you what’s best for you. Exchange the money when you need it. And, honestly, if we knew whether “this was a good time to do this or not”…. we’d be millionaires, right?
CAN I GET PAID OUT IN A DIFFERENT CURRENCY THAN MY BASE ACCOUNT IS NOMINATED IN? THIS IS FOREX AFTER ALL
Just because we are dealing in foreign exchange, doesn’t mean that exchanges are made for you. You will need to talk to your broker, but in general if you want a payout in a different currency than your base nominated currency, you’ll need a different account.
AM I ACTUALLY EXCHANGING CURRENCIES?
Yes and no. Do not over think this: your account and all transactions will always result in payments/losses in your base currency. That base currency is your home country’s currency. Are you American? USD. Canadian? CAD Living in Japan? JPY. Your broker handles spot FX in currency pairs. Although they make an exchange at the settlement date they treat your position in your account as a virtual currency pair. Think of it like a contract where you can only buy or sell it as a pair. In this sense you are always long one currency while short another. You are merely speculating that one currency will appreciate or depreciate vs another.
The remainder of the FAQ:
WHAT IS MONEY MANAGEMENT?
Money management is a form of risk management and is arguably the most important aspect of your trading when it comes to long term survival. You should always enter trades with a stop loss – the distance of the stop allows you to calculate how large of a percent of your account balance will be lost if your trade stops out. You can run a monte carlo simulation to figure out the risk of having a number of trades go against you in a row to drain your account. The general rule is that you should only risk losing 1-4% of your account per trade entered. More on this here: www.investopedia.com/articles/forex/06/fxmoneymgmt.asp www.swing-trade-stocks.com/money-management.html
SHOULD I START BY TRADING DEMO, OR GO LIVE?
This is highly debatable. You should definitely demo trade until you have mastered how to use the trading platform on desktop and mobile. After that it’s up to you. Many think that the psychology of trading live vs demo trading is massively different. So it may pay to learn to trade live. Just be warned that most FX traders lose almost their entire first account, so start with a low affordable balance. For those who have a nest egg but are not willing to expose it to loss while they learn, the best recommendation is to scale down to a decimal of that nest egg in a broker who can trade in microlots. Example: Great Aunt left you $/€/£10,000? When you go live, open an account at $/€/£100.00 and trade as if it were the whole thing; it makes the math easy to scale up. After you demonstrate to yourself a modicum of success (say, several months to a year of gains), evaluate whether you are ready to scale up. Then go to $/€/£1,000.00.
HOW DO I START DEVELOPING A STRATEGY?
We encourage all traders to join our professional price action trading course. The forex trading course is a 3 part advanced training course which will teach you all of my high probability price action trading strategies based on my propriety research and statistics over 10 years of backtested data. These are very similar trading methods that professional traders such as banks, prop firms and hedge funds use around the world use in their daily trading activities. The best part is that no information has been held back, all my knowledge about trading has been included. I’ll Share All My Strategies, All My Ideas and All My Experiences with You.
The course also covers various aspects of professional trading, including money management, trading psychology & developing a trading plan. All my courses are online and accessible 24hrs a day 7 days a week. I have everything laid out in a simple step by step system that you will follow to learn as efficiently as possible. I offer a Free Email support line if you need help or assistance with anything.
For more information you can find out more here
WHAT IS THE BEST INDICATOR?
In my experience indicators that are most popular with professional traders are those that provide trading “levels” such as pivot points, fibonacci, moving averages, trendlines, etc. Actual indicators are derrived from price so it’s best to understand how price action works first.
WHAT TIMEFRAME SHOULD I TRADE?
Price action can vary in different timeframes. In longer term timeframes the price action and fundamentals are much more clear. Unfortunately it would take a very long time to figure out whether or not what you’re doing is successful on longer timeframes. In shorter timeframes you can often tell very quickly if what you’re doing is profitable. Unfortunately there’s a lot more “noise” on these levels which can prove deceptive for those trying to learn. Therefore the best bet is to use a multi-timeframe analysis, working from top-down to come up with trades.
SHOULD I TRADE USING FUNDAMENTAL ANALYSIS(FA) OR TECHNICAL ANALYSIS (TA)?
This is a long standing argument in these forums and elsewhere. I’ll settle it here – you should have an understanding of both. Yes there are traders who blindly ignore one of the other but a truly well rounded trader should understand and implement both into the analysis. The market is driven in the longer term through FA. But TA is necessary to give traders a place to enter and exit trades from a psychological risk/reward standpoint.
I FOUND THE MARTINGALE SYSTEM, AND I WANT TO USE IT WHILE TRADING! I CAN’T LOSE!!
Martingale is a great way …. to lose your ass. Seriously, don’t do this. Martingale works until it doesn’t. And when it doesn’t, you will lose everything. We have said repeatedly that martingale has probably been around since the first dice, card, or chicken bone was thrown for money. Its a gamblers illogical thought process that relies on the false belief that chains of losses indicate that a win is coming. It actually has the name the gambler’s fallacy. It is entirely possible to have a string of losses that stretches into the hundreds. Your account cannot, unless you are taking such small positions to mitigate risk that I would have to ask: what the hell was the point anyway? Move away from martingale, learn to trade and most importantly learn to take losses and move forward.
I’VE HEARD TRADING BINARY OPTIONS IS AN EASY WAY TO MAKE MONEY?
The general advice is to stay away from binaries. The structure of binary options is so that when you lose the broker wins. This incentive has created a very scammy industry where there are few legitimate binary options brokers. In addition in order to be profitable in binaries you have to win 55-65% of the time. That’s a much higher premium over spot FX.
DURING A NEWS RELEASE THE MARKET DID THE OPPOSITE OF WHAT I THOUGHT IT WOULD.
This often happens because the market does not blindly react to numbers but rather to the numbers vs. what was expected. For example the market for a currency might react negatively to a rate hike if a higher rate hike was priced in already. News calendars and news sites listed above are your best resources for finding out what is priced in if you don’t have access to the various interest rate futures or swaps markets.
Software / Apps:
* Apps are typically broker dependent. Some brokers have their own proprietary software, while others lease common software like Metatrader or NinjaTrader.
* Chart Lab recommends: https://www.tradingview.com/ – Great browser based charting and alerts
*Japanese Candlestick Charting Techniques – Steve Nison (Price action, charting)
*Trading for a Living – Alexander Elder (Psychology)
*Trade Your Way to Financial Freedom – Van Tharp (Developing your own system)
*Trading and Exchanges – Larry Harris (Comprehensive book on trading and market microstructure)
*Trading Price Action Reversals – Al Brooks (Price action, charting)
*Trade What You See – Larry Pesavento (Pattern trading, charting)
*Growing The Money Tree – John Svazic (New to Forex/investing, technical indicators and algorithmic trading)
* Inside the House of Money – Steven Drobny
* Market Wizards – Jack Schwager
* Michael Lewis Books (The Big Short, Flash Boys, Boomerang, Liars Poker)
* Trading in the Zone – Mark Douglas
* Reminiscences – Jesse Livermore
* Fooled by Randomness – Nassim Taleb
* The Speculative Strategist – Will Slayter
* Reminiscences of a Stock Operator – Jon Markman
* Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets
* Forex Made Simple: A step by step day trading strategy for making $100 to $200 per Day
* 50 Pips A Day Forex Strategy
* Forex For Beginners
* Currency trading for dummies by Brian Dolan
The books listed are in no particular order, this should not be seen as a comprehensive list but one that we at Chart Labs find most helpful to learn to trade the market.
https://chartlab.io/forex-jargon/ – Common terms and acronyms