There are two ways to learn how to trade currencies: The cheap way and the expensive way. If you’re new to forex, let me recommend that you seriously consider the former and let the latter go until you’ve got at least the basics figured out.
Obviously, the expensive way to learn how to trade the forex is to open an account with a broker, deposit several thousand dollars, and then go wading into the market with no idea what you’re doing. If you have more money then sense, then you might enjoy the ride.
The cheap way to learn how to trade forex is by not using real money. You are going to be amazed at how many bad trades you make when you’re first getting your feet wet. Those bad trades will wipe out your cash before you even know what happened.
It’s not just picking the wrong currency pairs that will trip you up in the beginning; it’s also your susceptibility to making the same common trading mistakes that so many new traders make including:
- Going too deep into your margin account
- Not having a trading system that works
- Trading based upon fear and greed
- Reacting to unfounded rumours and scare tactics
- Failing to analyse market-related news and world events
- Buying or selling into trends that have run their course
- Misunderstanding trading basics such as limit and market orders
- Failing to account for commissions when managing money
- Failing to account for slippage when the market is moving quickly
- Not accounting for the possibility of blowing stop-loss settings in a fast market
And that’s just the small list of common FX trading mistakes.
When you paper-trade, you risk nothing. Your education is free and you preserve your investment bankroll until you’e ready to go live. And that’s the smart thing to do.
To start off, you can play our free trading game. This is based on historical data and lets you try out forex trading without any risk. Unlike a demo account (see below), you can speed up or slow down or even pause the simulation.
Many forex brokers provide demo accounts where you can simulate trading strategies without risking your capital. Some of these offerings are pretty sophisticated in that they actually allow you to place simulated trades in a real-time environment where you can watch your orders being filled and see everything that an actual trader sees.
These advanced simulated trading accounts often work like this:
- You register for a paper-trading account and the broker deposits a fixed amount of simulated money into your account.
- You place your live orders just as if you were trading with real money.
- You receive your fills notifications online.
- Your account is regularly updated in real-time.
- You have complete access to all to your trading reports and account statements.
- You have access to technical analysis tools using delayed data.
- You can continue trading until you feel comfortable switching over to an actual trading account or until all of your simulated money has been lost.
This is the best way to get a “Master’s Degree” in forex without going broke doing it.
Another option that many new FX traders use, as well as pro;s who want to test new strategies or sharpen their trading skills, is a product called PriceMotion FX. This is actually an FX trading “game”, but don’t let the word “game” fool you. It;s no toy. The product sells for $79 and it runs on your PC. Installation is quick and easy.
The software provides a number of features that allow you to simulate actual market conditions and scenarios including:
- The ability to simulate bull and bear markets.
- The ability to analyse market behaviour using in-depth analysis screens.
- The ability to create graphs by inserting market parameters and available trading tools.
- The ability to create and run multiple market simulation strategies at the same time.
- The tools needed to generate various technical trading patterns like Bullish/ Bearish Head and Shoulder, Flags, Pennants, Wedges, Simple Triangles, Symmetrical Triangles, and Rectangles.
- The ability to set currency preferences.
- Simulation tools for buying and selling contracts.
- The ability to generate profits and losses through the simulated trading activity.
- Access to a wide range of reports.
But perhaps one of the most interesting feature of this software is the ability to roll-back trading decisions and re-execute them using different strategies. This allows you to test “what if” strategies and see how the results differ each time using the exact same market data for every test.
Many users find that PriceMotion FX is more valuable to them than a free trading account with their broker because of the lessons it is possible to learn using all of the simulation features.
Over a trillion dollars per day change hands in the forex market. Trust me, it’s going to be there for a long time so there’s no reason to rush in headlong and lose your shirt. Take your time, paper-trade, and get it right.