Rookie in the Forex Jungle: Part I
Grab some popcorn and read how our self-proclaimed financial genius tried to break The Forex Wall with his head. Repeatedly.
A Rather Long Introductory Section
Forex (Foreign Exchange) is the world’s largest exchange market, with an estimated daily turnover of $3.98 billion. It’s also the most liquid financial market in the world. This makes Forex attractive for all sorts of traders, including large banks, central banks, currency speculators, financial institutions, governments, corporations and so on. You’ve probably noticed that these are all large traders, capable of playing with significant amounts of money to back their trade. But that doesn’t mean that Forex is open only to financial heavyweights; there is also plenty of room for small investors too. In fact the number of micro and small forex traders is growing rapidly, as many people discover that the currency exchange market is not an out-of-reach territory. For those who aren’t familiar with Forex, it might be difficult to imagine how small individual investors are able to play on a market, where huge amounts of money are being exchanged on a daily basis. Two things have made this possible. One of them is the rapid advancement in technology, which allows for ordinary people to be able to participate on the market from their homes. But perhaps more important is leverage, which allows people to control much larger amounts of money than they actually have. Some Forex trading platforms offer leverage up to 1:500.
Speaking about Forex Trading Platforms…
So, equipped with all the knowledge I’ve managed to dig up about the market, I decided to go for a little test trial on several of the trading platforms available online and then write a blog about my experience, describing Forex trading from a rookie’s perspective. The lack of experience didn’t bother me at all – after all how hard could it be? You buy low, sell high, cash out and throw a big party to celebrate all the winnings.
Regrettably, my motion for a functional budget covering my expenses was swiftly denied, so I had to settle for the next best thing – opening a demo account. Many Forex trading platforms offer this option to their users, who can trade with fake money until they feel confident enough to try the real thing (actually, the trial period on most platforms is limited, varying from 30 to 90 days for the different providers, but I’ll take the liberty to assume that if a 90-day period isn’t enough to make you feel comfortable, it’s probably best to write off forex trader as a career choice).
I chose three such platforms – One Financial Markets, GFT Markets and Hantec Markets (you can find a full comparison of the three at the end of the article). All three platforms have simple registration procedures and don’t require you to share personal data other than name, country, email address and phone number. Some forex trading platforms ask for a credit card even when opening a demo account, but these three don’t have such requirements. GFT and One Financial Markets can be accessed via a web browser, while the Hantec’s platform has to be downloaded and installed on a local computer. But the installation is really quick and easy to perform. So, in a matter of minutes I was ready to start trading.
Off to a Good Start
Still feeling slightly upset that no-one in the office seemed to recognise the full potential of my financial whizz-kidiness I was more than determined to prove the sceptics wrong. And the start was pretty encouraging too, as I saw my investments quickly rising on all three accounts after I managed to capitalize on fluctuations on several currency pairs. I played mostly on the majors (EUR/USD, GBP/USD, USD/JPY and USD/CHF), because I’ve read somewhere that that’s where the majority of trading is performed. But I also tried some of the more exotic options, especially with the Hantec platform providing so many currency pairs and even commodities like gold and silver. At that point I was happy to trade whenever the exchange rate has gone a few pips in my favour (a pip is the smallest commonly quoted change of an exchange rate of a currency pair.)
My success solidified my conviction that I am a financial mastermind, a rough diamond that only needs a bit of polishing to truly shine. So, naturally I began trading with larger amounts to rake in the profits even more rapidly. However, my plans for an imminent and lucrative career change had to be put on hold, as some bad moves lead to substantial losses. Most crucial of all proved to be a major underestimation of the euro. I was betting against it on EUR/USD, assuming that with EU economies shaking, the currency should be weak. Instead it rose and I was forced to close positions on losing terms. Still, at the end of the day I was a couple of thousand ahead. Not too shabby for a complete novice.