Baby Boomer Beginners Guide: FOREX Made Simple
You’d be forgiven for thinking Forex was a golf term. After all, most advertising you see for it shows some wealthy looking, well-dressed guy strolling around a golf course. Well-dressed for a golfer, that is.
Forex is an acronym for foreign exchange. Basically it is a system where people trade in foreign currencies. It’s also the largest stock market in the world.
You don’t need to be a professional stock trader to take advantage of Forex, but you do need to know some basic facts to protect yourself from loss, make some money, and have fun!
In this guide we will cover:
- How to make money from Forex – from the comfort of your own home by learning from experience on a demo website
- Finding a reliable broker
- Managing your investments.
Let’s go!
Note: this is not a get rich quick scheme and has inherent risks. While it’s not exactly gambling, it could be said to be “intelligent gambling” so always be careful with your money when you trade.
How Forex Works
Forex trading means buying shares in a foreign country’s currency when it is at a low value and selling when it is high. So far, so good. But contrary to the way it’s often dramatized in the movies, it is possible to make money when the currency value drops. In trading stocks and bonds it’s called “shorting” the market.
Understanding this is what makes Forex and other trading so exciting. It’s not a passive occupation at all, and very much an activity that will require your time and focus if you are to be successful.
Traditional stock trading involves either going long or short.
Going long refers to buying stock with a view to selling it when the price goes up (not holding on to it indefinitely – never do that! If you have a poorly performing stock, holding on to it as it continues to decrease in value is a losing strategy – get advice from a trading professional, who will generally tell you to ditch the stock).
Shorting means bidding on the stock’s “points” reducing – becoming less valuable. When a stock loses value, the trader wins.
Forex is different from regular trading, in that participants trade in pairs of currencies. They follow trends in currency exchange and speculate accordingly.
Here’s a video from Alpari UK that explains forex trading in a nice, easy to understand way:
Gain Experience Without Risking Your Money
No one wants to throw away their money, so the sensible approach to Forex is to open a free demo account online to practice with before investing real money. Many brokers offer a free demo account in the hopes that you will trade with them, and hence pay the associated trading fees, when you learn enough to feel confident to trade real money.
Finding a Reliable Broker
You need a broker to actually buy and sell currencies for you. Just popping into your local bank is a definite no-no.
Here’s where it gets difficult: there are brokers and then there are broker-resellers. The brokers are more knowledgeable and considered more reputable than the resellers, who are just middle men.
Regular brokers should be accredited and members of recognized institutions.
A broker charges per trade, hsa a minimum trading amount and may even have a withdrawal fee. In other words, shop around. Here’s 5 tips for selecting a broker from Investopedia.
Managing Your Time and Money
Although forex trading has massive potential for wealth building, it has an equally big potential for loss. This is something that you need to pay attention to. Create a spreadsheet to track your spending – and your wins and losses.
If you are new to tracking things, pick up a copy of Excel from Microsoft, or get it cheap, second hand on eBay. A free alternative is LibreOffice.
Start Creating Additional Income to Put Towards Your Pension Investments
Now you should be familiar with what Forex is and how it can help you create some additional income. You know that you can gain from currency either increasing or decreasing in value, and that you need to select a good broker to work with. Sweet!
What You Have Just Learned
You have just learned some basics about Forex. But you’re not done yet… Pounce now upon:
Your Next Steps
To start getting involved now, open your demo account here https://www.fxcm.com/Forex-trading-demo
You can also use http://www.howthemarketworks.com to play the stock learning game.
There are both free and paid courses on Forex where you can learn more on Udemy
Subscribe to Forex.com on YouTube
Get comfortable with trading virtual money until you are actually making a (virtual) profit before taking up a genuine account with a trading broker.
Good stuff!