How to Get Started Trading Currencies (Continued. )

Practice Trading FX in a Demo Account

Many online forex brokers today offer paper trading accounts, and there’s simply no better way to familiarize oneself with the currency market and the broker’s trading platform. Generally, FX paper trading accounts are identical to live, real trading accounts, in that the demo trader enjoys all the same tools and features that are available on the broker’s actual system. The trader will get a feel for real-time, continuously-updating bid/ask prices. He can experience order placement and execution. Account balances, margin requirements, and P&L are usually updated in real-time, as well. The only difference, of course, is that paper trading accounts are funded with anywhere from $10,000 to $50,000 in hypothetical money, which means that trading methodologies can be tested and evaluated under actual market conditions — without having real capital at risk. You’ll likely find that most demo accounts have limited lives and expire in anywhere from two weeks to one month. But for most traders, that’s perfectly acceptable — after getting the feel of forex trading in a demo account, most traders are enthusiastic about taking the next step and opening a real account.

Consider Trading Mini FX for Starters

Several forex brokers now offer mini FX accounts, which are designed for those new to online currency trading and those with limited trading capital. Such accounts can be immensely helpful to traders who wish to learn currency trading while minimizing their risk. Instead of trading full-size currency lots (100,000 units), downsized lots (for example, 10,000 currency units) may be traded. Though the leverage in a mini FX account can still be substantial, the smaller lot sizes — with correspondingly smaller tick values — means that the trader will be assuming less total risk. For example, while a 20-pip loss on a 100,000 EUR/USD position would be $200, the same loss on a 10,000 EUR/USD position in a mini account would amount to only $20.

The Mini FX account can be useful in helping traders develop a disciplined, rational forex trading strategy without excessively focusing on profits and losses. When trading 100,000 currency unit lots in a regular, full-size account, traders with relatively small balances tend to fixate on their equity fluctuations and sometimes base trading decisions on emotional reactions to these fluctuations. Many traders, for example, resist closing-out unsuccessful trades at a loss, because they hope that the market will turn in their favor. Conversely, many tend to immediately take profits when the market moves in the desired direction, rather than maximizing their gains by allowing profits to run. With less capital at stake in a Mini FX account, however, the trader can develop a disciplined trading methodology — as well as the confidence needed to be a successful currency trader — without the anxiety and distractions that come with large P&L swings.

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