You have probably read or seen something about Forex trading recently.

Maybe it was a video claiming that you can double your money in days, or maybe an article in the paper claiming that Forex trading is gambling at best and a scam at worst. As with all things, the truth is more complicated.

The Forex market is the largest and most accessible retail trading market in the world and more South Africans every day are being tempted by the thought of being able to make money quickly. But Forex trading isn’t gambling and it’s not a get rich quick scheme – it is a long-term investment strategy, and if you want to be successful you will have to be careful and smart, especially if you are starting out small.

With a little education, caution and focus, anyone can learn how to trade successfully – here’s how to do it.

Good Forex brokers and how to find them

The first thing you want to do is find a good broker and all good brokers are well-regulated. There are many regulatory authorities around the world, some of them well respected and others less so. The best brokers are regulated by at least one of the big three authorities: The United Kingdom Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC), and the Australian Securities and Investment Commission (ASIC).

There are many other international regulatory bodies, such as our own South African Financial Services Conduct Authority (FSCA). The FSCA’s role in the South African financial services industry is essential – it assures that regulated brokers treat all clients fairly. A client of an FSCA-regulated brokerage who feels they have been cheated has a legally defined process to resolve their issue – all FSCA regulated entities must have this process available to potential clients.

Make sure you choose a broker that is regulated by at least one of the big three as well as the FSCA; or if you don’t, make sure that you have a very good reason for doing so.

Other important things to consider when choosing a broker is whether their trading platform is denominated in Rand, whether they have customer support in your mother tongue, what the minimum deposit is, and what kind of technical support they offer.

Learn without spending

Once you have chosen a “Zero spread broker” or well-regulated broker with the right customer support and trading conditions that you require, it is time to open a demo account.

Demo accounts are not just for fun – they are a serious educational tool. Most brokers offer unlimited demo accounts with 100 000 USD (or equivalent) virtual capital to get started. This should be more than enough for you to learn how a broker’s platform operates and then learn the basics of trading. Keep your demo account open and use it often, even once you have opened a live account, as it’s very useful for testing new strategies or unfamiliar currency pairs.

Education, education, education

This is of the utmost importance. Once you have chosen a broker and opened a demo account, you need to start educating yourself. Read and watch everything you can about Forex trading, and you may be shocked at how much there is to learn.

You can never be too educated when it comes to Forex trading; everything you learn will only help you trade better and more profitably. Learn the difference between fundamental analysis and technical analysis, learn how to manage your risk effectively, learn how the charting tools work on your platform, learn how copy trading and algos can make you more successful, learn how the market reacts to government data releases.

If you are going to be a successful trader, you will never stop learning, so make educating yourself a habit.

Jeffrey Cammack, Head of Operations at TradeForexSA, a broker comparison portal, highlights the importance of education for new traders:

“We see lots of new traders just jump straight into trading with little understanding of the market; this is no better than gambling but the potential downside is much worse – with gambling you can only lose what you’ve wagered, but with Forex, because of leveraged trading, you can lose more than your trading capital and even end up in a position where you owe a broker money.”

The best Forex brokers have well-structured, comprehensive education sections: Take advantage of this.  Many will have video tutorials and even host webinars. You will also find a vast number of video tutorials online covering all aspects of trading, from basic terminology to advanced charting techniques.

Tactics without strategy is the noise before defeat

Anyone can look at the markets and make a prediction about whether they are going to rise or fall. Most people can make an intelligent guess about which way they are going to go, once they have the right information at their disposal. But no one gets it right every time and the times you get it wrong can be very painful, both psychologically and financially, which is why it is absolutely essential that you develop a foolproof overarching strategy to see you through the moments when you get it badly wrong.

There are many Forex trading strategies, and there is no such thing as the “best” strategy – it’s very dependent on your own personality and lifestyle. The foundations of two major strategies are:

• Scalping – this is the practice of dipping in and out of the market a few times a day and taking small profits from small market moves. This requires constant focus and keeping a close eye on data releases/news events that will affect the market. This strategy is exhausting and time-consuming, but it does work. Even if the individual profits aren’t huge, they do add up over time.
• Positional Trading – this is the practice of keeping a position open for the long-term – often weeks at a time. This is less time-consuming than scalping but requires you to have a good idea of which way the market is going to move over a long period of time. This can also be a particularly stressful form of trading, as you will be tempted to close your trade when the market moves against you in the short-term. If you know the market and are confident in your predictions, you will learn to hold firm.

There are many other strategies that you will come across, but educate yourself before trying to use them, as they require a solid understanding of the market and many require analytical tools that can be added to your platform.

You should always try out a strategy on a demo account for some time before taking it live – make sure that it’s successful, at least most of the time, before you start spending your own money.

Remember that Forex trading requires a lot of trial and error. To be successful, you are going to have to try several different strategies before you find the right one, or combination, that works for you.

Don’t make yourself poor trying to be rich

So, you have a good broker, you have a good understanding of the market, and you have a trading strategy that has worked well with your demo account. Now you must decide how much you can afford to lose.

The Forex market can be a cruel and unforgiving place to those who enter it without the requisite caution. Never put more than you can afford to lose into your trading account and never trade more than you want to lose in a single trade. Make sure trading isn’t going to be painful for you and you will have a lot less stress and a lot more fun.

A good rule of thumb is to never trade more than 5% of your account on any given day and never trade more than 2% of your account on a single trade.

It’s ALIVE!

When you open a live trading account you will be asked for a number of things:

• Proof of identification – make sure you have a valid government-issued photo ID with you, such as a passport or driving licence.
• Proof of residence – you will also need your proof of residence, which is usually a utility bill (not a mobile phone bill) from the last three months.
• Your job and salary – most good brokers will also want to know what kind of work you do and your salary, so they can judge your suitability for Forex trading. It’s very rare that you will be rejected based on these criteria, but do listen to any feedback you receive.
• Payment/Withdrawal method – most brokers accept Visa/MasterCard/Maestro and wire transfers from your bank but many will also accept Neteller/Skrillex. Be aware that some methods of payment/withdrawal will have a fee attached.

You will also be asked to fill out an application – this may include problem-solving questions and other tests to determine your mathematical ability and financial knowledge, and may impact the amount of leverage you are offered. Once completed, it may take 24 hours before your application is approved.

Once you have approval from your broker you can go ahead and place your first trade. Congratulations and best of luck! Welcome to the most exciting trading market in the world.