Typically, you open an account, deposit money denominated in your home country currency, and then buy and sell currency pairs. Your purpose, of course, is to make money on your trades. Unfortunately, the majority of forex traders lose money ; the average length of a forex trading account is only about four months. It doesn't mean that the forex is a scam as some critics have maintained, but forex scams do abound.
Making money on highly-leveraged currency trades is harder than it looks and, at a minimum, requires developing an expertise that many novice traders fail to acquire. The requirements for opening a forex account have become simpler since the growth of online forex trading. First, of course, you'll need to find a forex broker -- all retail forex trading goes through and is managed by a brokerage, which may be a specialized forex broker or the same brokerage you use for stock market investing and trading.
You'll need to fill out a brief questionnaire about your financial knowledge and trading intentions. You'll also need to provide an ID, and the minimum deposit your forex account institution requires.
You're now free to trade. Incidentally, many forex brokers will take your credit or debit card in lieu of cash, so, you really don't need to deposit any money at all -- not that this is a good idea. If you don't have the cash now, how will you pay for losses later? Credit card debt carries high-interest rates.
One of the aspects of currency trading that makes it riskier than trading in the stock market is that the entire currency trading industry is either lightly regulated or, with respect to some trades, not regulated at all. A consequence of that is that unless you look carefully into the reputation of the forex broker you select, you may be defrauded. The very professional sounding CWM-FX brokerage, for instance, turns out to be one several dubious institutions created by a single trader about whom relatively little is known.
What is known is that foreign exchange trading at CWM-FX was suspended in early after a police raid that ended with 13 arrests. The company's website offers only a brief apology for "the inconvenience," with no word about client investments or any assurance that they will ever see their money again. There are two ways of avoiding this. The other way to avoid inadvertently connecting with a fraudulent broker is to proceed very carefully when considering a specialized forex brokerage.
Only open an account with a a U. FXCM, like almost all of the largest U. Some other well-known U. Don't be put off by the cute name: Before finalizing your search, compare commission rates. Transaction costs are an important factor in the profitability of trading activity. Updated November 01,More...