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International Currency Trading – 3 Golden Rules

International currency trading, or forex, is back in favour again as the recession forces more and more people to search for other ways of making a living. Unfortunately many of them will end up losing money and making matters worse for themselves and their families.

These people invariably trade by way of spread betting. If you are thinking of doing the same then here are three golden rules to help you avoid the fate of the 95 per cent who fail.

1. Open a demo account first, and keep to that for two or three months

One of the most useful things online foreign exchange brokers provide is the demo account, where you can practise trading in forex without risking real money. You should take advantage of this and run one for at least two or three months, trading with it every day, before you open a real account.

Treat the “make believe” money as if it were real. Of course, it’s fun to be trading with big numbers, and many traders start trading at $10 or $20 a point just to see how “quick” they can get “rich”. But remember that at this stage it’s not how much “money” you make or lose that matters, it’s the number of points you earn.

Select just two or three currency pairings to trade. Don’t try to master every currency there is to choose from in a matter of months – you won’t do it. Keep to those two or three and get to know them intimately. Study the charts, but also keep informed of news and developments that will have an impact on the price. This takes some dedication that most people, who ultimately fail, just don’t have.

2. Avoid small stop losses

International currency trading is subject to great volatility. The market frequently doesn’t react as it “ought” to react. Often news, whether good or bad, has already been leaked and the market has “discounted” it by the time it breaks.

At other times the market behaves in an extreme manner, shooting up or falling by a hundred points or more in just minutes. It can have “reversals” at any time before resuming its previous course. All the charts and indicators now available will be of little help in trying to predict all this.

Amazingly, many of the so-called experts selling their courses and information, robots and other software on making money in forex instruct their students to set up tight stop loss levels. This is meant to protect against large losses when the price suddenly moves against you. Whilst you prevent a single large loss, the trouble is that you tend to collect several small losses very easily, and these add up to a very large overall loss.

You can only survive by having realistic stop loss levels. Your risk on each trade is therefore large, even if you are staking only $1 a point. This, unfortunately, is a fact of life which we can’t change. All we can do is act in accordance with the third golden rule, which is . . .

3. Learn currency trading from a successful financial trader who is willing to teach you

You’ll learn that the only people who make money through day trading forex with a spread betting account are the big banks and financial institutions who have countless millions to trade with. The forex market may be the biggest market in the world but it doesn’t mean that it isn’t manipulated. It is dominated by the world’s 20 or so largest banks, and it is their traders who make the money at the expense of small traders, mostly new to forex.

You’ll learn that the smart way to do international currency trading is not through spread betting (unless you too have millions to trade with) but through other methods such as covered warrants, where you don’t get stopped out by the volatility. Warrants may not be as fast as spread betting, but you stand a far better chance of making money with them.

To learn more, just go to our home page and complete the form for your free mp3 interview with Vince Stanzione, Secrets of Successful Trading.

Philip Gegan