Trading in Forex Capital Markets requires long-term strategic planning to be consistently successful, although it may seem that investing in currency trading is an “easy–peasy” kind of business. Hey, what’s not to understand here? Open an account, transfer few thousand bucks and start trading with 1:200 leverage for quicker profits.

I can already imagine the eyes of such “trader” after 2 weeks of this kind of “investing”. I would be hugely surprised, if you have not lost it all by that time. I presume, the second step after such unsuccessful venture would most probably be digging into forex trading studies, lessons, online courses, market analysis and the like. It would, surely, be a wise step, as everything you are or will be into requires analysis and study, even the simplest car driving or cell phone usage.

However, currency trading is far more complex than driving a car or even the Ferrari. Even after months of hard and accurate study and practice you cannot be sure of future success and profit. Why is that? It is because your biggest enemy in forex investment is you. Let me repeat that for deeper emphasis: the greatest and biggest enemy in currency trading market is you! It’s not banks or corporations manipulating the market, news and rating agencies (S&P, Moody’s) which can and are strongly influencing the stock and forex markets. It’s not interventions (they occur rather seldom), it may not even be your trading plan, which could fail you in one week and surprise you in the next.

It’s your emotions that you have to deal with and they could easily disrupt your trading style and strategy. Just think for a minute: you can have a profitable system, which proves to be bringing consistent returns in the long term, but a few losing trades in a row make you feel uncomfortable and doubtful about your trading strategy. As fear of losing again starts growing and shading your common sense, you may start acting irrationally, not according to your trading plan.

The results wouldn’t, of course, be very enjoyable, to say the least. After a few lost trades, you might be scared and keep from a successful trade, fitting the strategy profile. All this is due to the negative emotional recency bias. After a lost opportunity and wrong trades the only one to blame for this chaotic trading is you. Instead of dwelling on previous loses, even few in a row, you must remember your successful trades and the whole long term trading statistics. This would keep you stuck to your trading strategy, which, in turn, would prevent you from losing more.

If your strategy is bringing consistent profits for 6 months, just 1 or 2 losing days don’t mean anything. Obviously, the biggest mistake would be leaving your trading method and starting placing trades against your plan, just out of emotional discomfort.

The opposite of this kind of trading is winning a few trades in a row. After that I would suggest taking a break, because a sudden emotional euphoria might lead to taking uncalculated leverage and huge risk. The recent successful trading brings a sudden self confidence and a feeling of happiness and invincibility. However, sudden loses might just inspire to take even more trades in disbelief that one’s “luck” is suddenly ending. This would only speed up the account capital meltdown.

The best cure for both scenarios is to remember that you are using a long term strategy which works and brings profits only when a sum of large number of trades is taken into account. Taking a break and analyzing your mistakes and statistics of your past trading in your real of forex demo account would leverage your emotions and keep you on a proper forex investing track.

This is a guest post from Tom Cleveland

Unless the average investor is totally blind, every website connected with the forex industry publishes in bold letters that forex trading is a high-risk profession.  It requires specialized training and hours of practice, and even then an adverse movement in the market can wipe out your position and total capital if the prudent risk management principles are not applied.

These disclosures are not meant to scare every prospective forex investor away from the profession, but the level of casualties in forex trading is high, and the majority of newcomers fail to grasp the sage wisdom that professional traders will gladly pass along to young neophytes, if only they would listen and comprehend.  Knowledge and experience are paramount to surviving in this high-stress trading environment.  On average, it is said that, there are three losing trades for every winning one.  Losses must be minimized so that the few winners can run and produce “net” trading profits.

This objective can only be achieved with emotional control and a disciplined approach to managing risk at every juncture in the process.  Like every profession that involves the exchange of real money, risks can come from the criminal element in our society, as well as from the actual act of trading.  You are your first and last line of defense for preventing fraud, and you must also be responsible for employing prudent risk management procedures to limit your actual losses while trading.

In the area of fraud prevention, the CFTC, the forex industry’s watchdog and regulator, has performed a yeoman’s task over the last decade policing the industry and ridding it of fraudulent forex brokers and unscrupulous fund managers.  This does not mean that all of the crooks have departed the scene.  Many operate from overseas where the long arm of the law has no jurisdictional rights of enforcement.  Be very wary of claims from brokers that offer the world, high leverage, or sound too good to be true.  They are most likely overseas.  Once you send your money, you will be lucky to ever see it again.  Stay onshore and be safe.

Marketing campaigns for the latest and greatest trading systems or robotic software may also sway most beginners who believe that someone out there has the secret formula for success.  If there were a “secret”, no one would part with that information.  They would become wealthy and leave town.  Most marketing hucksters are testing the boundaries of legitimacy and want to get rich at your expense.  Forex scams are a bitter reality.  Employ ample due diligence in selecting any of your business partners, and remember if it sounds too good to be true, it most likely is.

Trading risk is another matter entirely.  Assuming that you have opened a quality forex account, practice time spent on the accompanying free demo system is the only way to gain experience, test your trading strategy, and acquire the confidence and consistency that real market trading demands.  You must use stop-loss orders to minimize your losses, and you must have a detailed plan, which includes stop-loss order placements, to guide your market actions before, during and after a position is closed.  Also check your broker’s agreement because he may specify specific instances, as when important data releases are made public, that he will not guarantee a proper execution of your stop-loss orders. In fact, actual guaranteed stop-losses don’t exist.   Trying to sell when servers and phone PBXs are overloaded is a true risk, and avoid leverage when it may magnify the risks that you are trying to prevent.

Forex trading is high-risk and mitigating risk is your foremost responsibility.

Investing in forex is very different than trading.  It’s the same for any financial market.  In trading, you are looking for short term gains.  You aren’t interested in the underlying fundamentals of an asset.  You are only interested in it’s price and market movements.  A forex trader looks at charts, indicators, moving averages and other technical analysis signals to predice price movements.

When talking about investing, we are referring to finding assets and financial instruments that have inherent value.  Investors tend to analyze fundamentals that may or may not reflect it’s market price.  The idea with investing is finding assets with good underlying fundamentals that will fuel it’s long term growth over time.

It’s no different with forex investing in this market.  If you want to invest in this market, you are looking for ways to park your money and see it grow over time with minimal management.  Sometimes it can seem difficult to do this in the forex market.  It seems like most everyone in this market is a trader and not an investor.  But that doesn’t mean you can’t take part in the largest financial market in the world.

There is one way at least to get involved without being a forex day trader.  You can invest your money with a managed forex account.  These are kind of like mutual funds where you hand your money to a professional money manager to trade your capital for you, for a management fee.

These accounts leverage the experience and skills of professional currency traders.  These traders have a track record of positive historical performance often with years of experience with an investment firm, hedge fund or an institutional trader.

Not only do you get an experienced forex trader to managed your account, you are also getting the resources for the forex broker.  Each broker often has their own proprietary platforms and systems that they have spent a lot of money to build.  They usually keep their forex trading strategies a secret.  Obviously, if they have a strategy that is working, they wouldn’t want their competitors to know what they are doing.

You don’t have to be a trader to get involved in this market.  It’s the largest financial market in the world with around $3.2 trillion trading every single day.  There is room for investors in this market.

If you are fairly new to the forex markets, you may be on the lookout for a forex investing system, or at least some sort of system that can help you with your investment and trading decisions, your position-keeping and your profit & loss (P&L) tracking.

So what kinds of systems are available out there and how much do they cost?

This is very much a “how long is a piece of string?” question and the answer, like with many such questions is, “it depends”.

Forex trading and investing systems can cost anything on a scale of zero to millions of dollars, depending on who you are and what you are looking for. If you are a Global International bank with hundreds of traders to support, you can expect to pay well into seven figures for a wide-ranging forex system that will give you functionality for front-office (trading), middle-office (risk) and back-office (accounting).

Most of us however do not fall into that category, so we look for something a little lower on the scale. The good news is that many forex brokers now provide you with a basic forex trading and position-keeping  system for free when you open your account. If you are just looking for a simple forex investing system to provide you with the most basic technical analysis signals and to give you the ability to track your position and P&L, it is unlikely you will need any more than this.

If however you are a more seasoned trader with greater requirements, particularly around technical analysis, there is a wide range of commercially available packages out there, typically retailing at anywhere from around $50 to $500 or so.

You may not actually need to spend your money on one of these commercial systems though, because a lot of the basic packages from brokers are very good indeed. So our advice would be to try out your broker forex system first, before spending cash on a dedicated system.

The foreign currency markets, or forex, on which major national currencies are traded, is a massive international free market that can make or break a forex trader on a daily basis. Because of the extreme volatility, trading volume, and liquidity of this free market, forex investments must be made only after a thorough understanding of the nature of the beast is understood.

There are countless stories of amateur traders stumbling upon overlooked or even penny stocks, usually of small companies, and enjoying profits of many times their initial investments. Many day traders make their living following the best stock tips and using technical analysis to make their living trading stocks online. However, there is no room for beginner’s luck on the forex markets – with exchange rates plummeting or skyrocketing in a matter of seconds, plus the fact that you will be trading with some of the best minds all over the world, means that it’s vital to spend at least a few weeks preparing to trade on forex and even conducting trial forex runs, where you trade with imaginary money using the same tools that real forex investors use, and see if you can come out ahead.

To maximize your chances for success, pick two of the major world currencies to trade against and between. For most people, the “major” currencies will be the British pound, European euro, American dollar, Japanese yen, the Canadian dollar, the Australian dollar, and the Hong Kong dollar. It might be easiest to pick your home country’s currency (if it is one of the major currencies), as one of the pairs, but it’s not necessary.

Next, you need access to a good current events, 24 hour news source. Every forex trader will have their own “secret” sources, but a channel like Bloomberg News is a good place to start. You will need to react quickly to current events that you think will impact either of both of your currencies, and access to a speedy news source is the only way to do this – the forex market is the most liquid in the world, which means it reacts to changes and adjusts prices at lightning speed, but if you move fast enough, you can get ahead of the momentum and gain a slight advantage.

There is a potential for massive losses when beginning forex trading, but through due diligence, you should be able to keep your losses to a minimum and increase your profits exponentially.