The choice of a Forex or foreign exchange market involves three decisions for every trader. Both Forex traders and investors must choose a Forex currency or currencies to trade, a reputable Forex dealer and a Forex investment strategy. Forex trading involves substantial risk and leverage, and it is important to have a Forex business plan that is judiciously followed in order to minimize risk and maximize those profitable investment opportunities that arise. Forex trading occurs on a 24-hour basis around the world. Proper Forex execution demands good decision making.
Instructions:
1) Be aware of the tremendous leverage available in trading Forex. Respect the risk you are taking. Typically, the amount traded is leveraged between 50 and 100 times your margin per trade. Choose an appropriate per-trade amount not to exceed two percent of your total available trading capital.
2) Learn and trade only the major currencies. These currencies include the United States dollar, the Eurodollar, the Canadian and Australian dollar, and the Japanese yen. Understand that other currencies have much less liquidity, making the spread between the bid price and offered price so large as to be impractical for making substantial trading profits on a regular basis. Know that major currencies make up over 80 percent of all trading volume in the world.
3) Trade with a plan. Know your buy and sell points before you begin and how much you are going to put at risk in every trade. Always use stop losses, and respect them when trading. Forex trading is a business, not luck, and most traders have more losing trades than winning trades. The key is to let your good trades maximize their value while keeping losses to a minimum.
4) Study the transaction charges of different brokers carefully. Transaction charges vary by type of currency. Know that major currencies have narrower transaction costs, while minor currencies can be very expensive. Shop the stated and actual spreads charged by the broker. Examine the margin available at every broker, but never choose a broker just based on higher margin. Learn whether the broker is a major dealer in the currency, and look out for brokers that have bad customer service reviews.
5) Trade only during the active hours of the currency you are following. Forex trading occurs on a nearly continuous basis, but only certain hours are active. These active hours tend to be when European and Asian markets are both active or when the European and American markets are both active. Liquidity drops sharply at all other times. Markets are generally closed on weekends until late Sunday night.
Tips and Warnings:
Only trade Forex currencies of major countries.
Practice trading before committing real dollars.
Commit to a plan before entering into any trade.
Always respect and use the stop losses you have chosen before entering into a trade.
Never trade without a Forex trading strategy that follows the major trend.
Use scrupulous Forex brokers. Review the creditworthiness and reputation of the broker before opening an account.
Source - eHow
