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If you’ve found your way here, it has to be because you’ve heard of forex. you’ve heard that there is some money in it, but you have no idea what it all means.

You’ve come to the right place if you are interesting in learning about forex. Forex trading is one of those things that can feel significantly more complicated than it actually is.

Forex trading is the act of buying or selling one world currency against another. For instance, you can buy Euros, specifically against USD Dollars by buying a currency pair called the EUR/USD. This is called going long on the EUR/USD. You can also do just the opposite, buy the US Dollar against the Euro by selling, also called, going short on the EUR/USD.

This all sounds very complicated, but it’s very simple. If you expect the Euro to gain value faster than the US Dollar, you would buy the pair. If you expect the US Dollar to gain value faster than the Euro, you would sell this pair.

Going Short and Going Long In forex, using the term selling and buying can be a little confusing because when you make a forex transaction, you are actually doing both things at the same time. To eliminate the confusion we use the terms going long and going short. If you are going long on EUR/USD you are expecting the Euro to rise and the dollar to fall. In other words, the Euro will become worth more money in dollars. If that actually happens after you go long, you make a profit. If you go short, you are expecting the dollar to gain value against the Euro, meaning that the Euro will be worth less money in Dollars.

This type of thing is what I mean when I say that Forex seems more complicated that it is. Once you are making your first trade, you will see that this is much more simple than it seems.

Trading Styles

One common thing that most people thing when approaching forex trading is that there must be a simple forex trading system that will make you money. There is, but it’s not the type of system that you might think. You buy low and sell high, that is the way to make money. There are plenty of vendors out there trying to sell you their end all system, but the truth is the more simple you keep things, the better you will do. If you’ve ever spent any time following Warren Buffet, he says that he buys when no one else is buying and he sells while everyone else is buying. He is following the simple system of buying low and selling high. There are plenty of ways to try to do this, but nothing is full proof, you have to trade with some sense, and assume that any trade that you make can turn out poorly and be willing to cut your losses and move on.

Risk Management

Forex risk management is one skill that I wish more traders would work on early on. I’ve watched many new traders dive in, take heavy risk, and get blown out very quickly. They may try once or twice more, but the bottom line is that they end up feeling like the market must be a scam. The problem is that people tend to focus on the greed of willing rather than the risk of losing. The first rule of forex investing strategy is capital preservation. Making profits comes only secondary to protecting your money. If your number one priority was not to lose money, you might trade more protectively. Once you learn how to cut your losses appropriately and protect your money, you will have a chance at actually making some money.

The other thing that I wish I could get across to more traders early on is to only trade with money that they can afford to lose. When you are trading for your mortgage or rent, you are more desperate to make trades and bring in money and you tend to misstep because of you fear. This is more of a psychology problem, but it leads into poor risk management so it’s a good thing to keep in mind.

Practice

Forex trading brokers allow free forex practice accounts to allow you to practice trading under real market conditions. Many of these accounts are unlimited and work the same way your live trading account would work. The only thing that the practice account doesn’t simulate is the fear you will have about losing your hard earned money in a real account. No matter what your preferred approach to forex trading, be careful with your money, test out theories on a test account, and never trade money you can’t afford to lose. If you follow those basic principles, you should survive long enough to start making money .