You may have seen online forex brokers advertising things called margins or leverage, which are the same thing, of 1:20, 1:50 or even 1:100. the bigger the margin, the greater the possibility to make money quickly, and the greater the risk. This is how it works:

When trading the margin, you only have to cover a certain amount of the trade or position that you wish to open. So lets have an example of a margin of 1:50 and lets say you had $100 dollars you wished to trade for euros. Ordinarily you would think that you could only get $100 worth of euros, and that if the euro went up by 5%, you would have made a whopping $5. however with online trading brokers that offer margins, you would have actually made $250. yes two hundred and fifty dollars, from a $100 investment.

There is no magic here, what happens is that when you open a trade with your $100 dollars, the broker actually puts in an order for 50 times that, so you are really opening a $5000 position. Once the market moved 5%, your position was worth $5250, and when you cash it in the broker takes their commission, (something like $10 or $20) and you keep the rest of the profit.

But what if you got it wrong, and the position actually moved 5% the other way. Well you would think that you would lose $250 as well, but this isnt the case. Online forex brokers operate what is called stop loss orders, which means that you cannot lose more than what you originally put in. The forex companies computer system automatically closed the trade if you have lost the amount you originally put up to stop any further lossess, and you a relatively safe.

Most companies let you program your own stop-loss orders, so that your account will automatically close a trade if you have lost an amount you specify. This means that you can sleep soundly with a position open, knowing what the worse case scenario could be, and allowing you to risk more capital for even greater reward. Before investing any real money, you should definately try out at least one online demo forex account.

1. Understand exactly what forex is, how it works, how you can make money from it and how you can lose money from it.

   this includes not just a rough overview, but having a decent understanding of margins or leverage, pip spreads, commisions, everything

2. Know what makes a good trading platform

   Find a few and try them out, because whilst some things that make a platform good are universal, such as low commisions and pip spreads, other things come down to personal taste, such as the layout of the software

3. Know how to use your choosen platform well.

   Opening trades and setting stop points are an absolute minimum, in fact i say thats not enough, really you should be able to overlay and read several charts at different time intervals, integrate signals and know your way around.

4. Be able to emulate or develop different strategies, and test them on a demo account first

   If you arent testing different strategies on play money, you may as well go to the casino

5. Be conservative

   Once youve got real money on the table, you should only be risking it when conditions are just right. If you rmaking more than a couple of trades a week to begin with, your probably being to gun-ho and could be heading for a rude shock in the form of lost money(note some strategies call for many trades, but even if you adopt such a strategy, be ultra cautious when starting out)

So there you have, a simple plan if your just starting out, surely better than risking money up front and losing the lot!

A scalping stretegy is a short term forex strategy. Bascially what it entails is making very short term forex trades, often keeping trades open for only a matter of minute. The goal of this method is to make lots of very small profits, often in the region of only a handful of pips.

as you can imagine, if your only going to make a few pips profit per trade, then you are going to have to have a significant amount of money on the line in order to turn any sort of reasonable profit, and this is where the danger of a scalping strategy comes into play.

If your trading forex at home and want to implement a scalping strategy, you are going to have to trade with a large margin. The larger the margin you have, the more capital you will need in your account to cover the trade if it moves in the wrong direction. If you dont have enough capital, your trade could be automatically closed and you could lose your entire account. not good.

For this reason, scalping strategies are not really recomended to people who have only just begun to learn forex. If you are just starting out, why not try our ultimate guide to forex, which offers a quick overview of how forex markets work.

Well, when you look at forex charts, you see that each currency pair has two sets of numbers, a pip is the last digit of each number, so if a price changes from 0.870 to 0.873 it has moved 3 pips. The pip spread is the gap between each number, for example 0.910/0.915 has a 5 pip spread. This is important stuff, because what you want is lower pips, the lower pip, the easier it is for you to profit.

Why is that?

Well, when you start a trade, you always open at the ‘worse’ position and therefore you must cover the pip spread before you start making profit. If the pip spread is too large its hard to profit even if you get the direction of the trade right, so always look for a broker with good spreads.

Ok, so maybe i can make a little profit, but i dont have enough money to make any serious cash

This situation may seem familiar, its that old adage(or is it myth?) that it takes money to make money. In forex there is a little twist to this, you can use someone elses money but keep all the profits. Nothing illegal or bad, its called margins, and essentially what works is you use your money to cover the margin of a trade. As an example, if you had $100 and traded with a margin of 50:1, you would be able to open trades worth $5000. if you did this and the pair you were trading improved by 1%, you would be $50 up(before commision), but then your next trade you can open $7500, another 1% and thats $75 for you. If you are good at picking what will happen between a currency pair, you can quickly build your capital trading like this, however there is a catch, this is the real world and money can be lost. When trading margins your risks go up with your rewards so always be careful that your not risking to much, becasue just as you can make fast profits with margin trading, you can also lose it carefully. See our Risk Declaration for more details;

So, we finished the ultimate guide part 2 with something called margins, lets find out how they work in the final part of the guide, part 4.

The best bit! with Forex markets, it is always possible to make money. Unlike stock markets, housing markets and all the other markets that can, as we have recently seen, crash, on Forex markets if one currency is going down against another, you can be making profit. The entire market cant crash, because is based on what currencies are worth compared to other currencies, so when one is going down, its the same as another going up.

How does that work?

Well, lets say you had 100 US dollars(US$100) and you thought the dollar was going to go down against the euro, so you bought euros with your dollars. If the exchange rate between dollars and euros was 0.75 you would get 75 euro cents per dollar. So now you have €75.  Now just say you were right! The dollar went down! This would mean the the exchange rate would go down, lets say to .65, meaning one dollar was worth 65 euro cents. This is great news for you, because you bought euros, so if you swapped back your €75 to US dollars you would now have US$115.38. All you have done is move your money from one currency to another and back, and you have made a profit.

Thats it? sounds easy

It literally is that easy,  there are a few things to take into account, such as commission you must pay to your broker(choose your broker carefully!) and something called “pip spread” which will be explained in the next edition of this guide, but there you have the basics.

In the next part, as well as talking about pip spreads, I’ll introduce you to the tool which can really crank up your profits on forex markets,  margins. Margins are what make forex trading the exciting money making venture that it is, so stay tuned!

Forex is actually the beginning of the words Foreign Exchange joined together. In effect when someone says forex, they are refering to the Foreign Exchange Market.

So what is the Foreign Exchange Market then?

The Foreign Exchange Market is the largest market in the world, it is where all international currencies are traded over the entire planet, so as you can imagine it is huge. How big? Well try over $3 trillion every day, that’s $3000000000000 every single day. The reason this is so ridiculously large is that a lot of money can go into the market then come back out again several times a day as large companies make many trades to try to maximise their profits.

Foreign Exchange? Like a bureau de change?

Kinda, when you go on holidays, you have to get local currency from a change office. When you trade forex you dont actually get any cash in whichever currency you have bought, instead when you trade currency you open what is called a position which remains open for as long as you wish to ‘hold on’ to whichever currency you have bought. When you want to sell that foreign currency you must ‘close’ your position and any profit you have made shows up as your home currency in your account. If you’ve used these change offices before you may have noticed that they have two prices for each currency, these are a buy price and a sell price, which will be examined more closely in the next section of this guide.

Check out part 2 of the Ultimate Beginners Introduction to “forex” soon.

There is so much information out there relating to forex, that it can be difficult to find your way, and the very process of getting started with learning forex online can be so daunting that many potential traders probably never even give it a go. This is a shame as trading forex markets can be fun, rewarding and most importantly profitable. But if youve made your way here you probably know this already and are intent on finding out as much as you can before sticking any real cash in, if that is the case then well done. With your intention of learning you already have a headstart over most new traders, who play around with real money before they are ready, lose it, then run from forx forever, thus restricing themselves from this great source of income and profit.

So if you are thinking about learning forex online, then you have come to the right place. Bookmark the page or subscribe to our newsletter as the information presented by this site will always be top quality and aimed towards forex newcomers.