1. A Bigger Market

The forex market is huge, with almost $4 trillion traded on average every business day. That is more than all of the stock markets of the world combined.

At the same time, the number of currency pairs available for trading is limited with about 90% of the total trading taking place in 10-20 currency pairs.

Compare this with the number of stocks that can be traded in just one country, and it is clear that the major currency pairs have many, many times the liquidity of any stock. This means that it is generally easier to get the price that you want at the time when you want it.

2. Less Corruption

Another advantage of the forex market over the stock market is that it is almost impossible for a player to manipulate prices. However huge some of the investment funds of the big international banks may be, they do not hold much power individually in a trillion dollar market.

It is simply not possible for any institution to control the price of a currency pair in the way that company stock prices can be manipulated. For the same reason, insider trading is not the problem that it is in the stock market. All of this means that the playing field is much more level for the small time home trader.

3.  A 24 Hour Market

Online foreign exchange trading takes place all around the world. From Monday to Friday it is always business hours somewhere, so trading can take place 24 hours a day, 5 days a week.

The market is open, in fact, from 4 pm EST Sunday to 4 pm EST Friday. This is great for anybody who cannot trade during business hours in their own time zone. You can get online evenings or early mornings instead.

4. Trade Both Ways

Currency trading is always an exchange of one currency for another. You are buying money, and the only way you can do that is to give another form of money whose relative value will change.

This means that you can trade in either direction, going long or going short. While this can be done in some forms of stock trading, it is constant and therefore much more available in online foreign exchange trading.

5. Automation Works

For some reason, the forex market lends itself to automation much more easily than the stock market. Forex robots are created out of all kinds of trading systems and many of them are successful. This is not the case with stock trading.

Perhaps it is simply because stock movements are less systemic, depending more on company policy and inside knowledge than technical analysis.

In any case, this can certainly be one of the benefits of online foreign exchange trading.

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This means always being consistent, following the system and applying the plan, no matter how the market looks and no matter how you feel.

The world of foreign exchange trading can be crazy at times and being consistent is our main chance of being successful. Maybe it’s even the only way to be successful.

Easy enough to say, but a little harder to do in practice, right?

In fact, it gets a lot easier if you have certain things in place before you ever start trading for real.

The first thing that you need is a good solid foreign exchange trading system that is showing profits in testing. This means back testing plus testing in a demo account.

For the back testing you can rely on somebody else’s results if you trust them, but the demo account testing you must do yourself. This is because there may be something that you are doing differently.

You also need to know how it feels to trade with this system before you go live.

At the same time as you are testing the system in demo, you can be drawing up your foreign exchange trading plan. Risk management is one of the most important factors here.

How much will you risk per trade? This can vary according to the system and the trader but it is usually something around 1% to 5%, never more than that.

If you go higher you will very likely lose the whole funds during one of the inevitable bad spells that all systems go through from time to time.

The plan also includes the level for a stop loss on each trade, the level of profit that you are aiming for, and of course the trading signal(s) that indicate when a trade should be opened.

It is important not to deviate from these once you have decided on the system.  Remember that profits depend on a system being applied consistently.

Before going live it is important to have complete faith in your system. If there are still any doubts in your mind about it, stay in demo. This is because foreign exchange traders who go live without being completely confident in a system tend to start tweaking or switching systems as soon as there are a couple of losses. It is very important not to do this.

If you jump from system to system any time there are losses, you will miss the moment when the market would have repaid you. You will probably switch to a system that has been doing well recently, only to find you have got in just when it is taking a downturn.

So never make decisions based on short term results. Do not act on impulse either. Have your plan written out in every detail and keep it with you when you are trading. This will reduce the number of mistakes made in moments of stress.

If you have trouble being systematic, you may want to consider using an automated forex trading system, otherwise known as a forex robot.

Once you have it set up right, a robot will be 100% consistent in applying a foreign exchange trading system.

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Many brokers have dropped their minimum investment so that the average person can get into forex trading, and even more new companies have sprung up as if from nowhere.

So how do you choose between them? One way is to look at their business model, which can have a big impact on your individual trading results. Here are four types of foreign exchange broker that you need to know about.

1. NDD (No Dealing Desk)

In the old days, brokers had their own dealing desks through which they would place orders for clients who normally called in with their instructions.

The time and skill that this required meant that clients had to have a large investment fund to make it worth the broker’s time. That is why the ‘standard’ forex account size usually has a minimum investment of $10,000 to $50,000 or more.

However, as we have seen, the internet has changed all of that. There are still some brokers who only operate standard size accounts but they are much less likely to use their own dealing desk.

Instead, traders manage their own accounts through the broker’s trading platform. That is the software on their website that you can access to place your trades. The platform connects up with a liquidity provider that matches the order with a counterbalancing order in the market.

The spread in this situation is naturally low because of the competition between liquidity providers. However, brokers will often increase it a little so that they make money on the deal.

2. ECN (Electronic Communications Network) Brokers

The ECN is a large network on the internet which matches trades. Most market makers connect to the ECN but some brokers will let you access it directly. Again the spread here tends to be low but brokers may add to it with fees.

3. Market Makers

Unlike traditional brokers, market makers will first match your order themselves and then cover their risk by opening a position in the electronic communications network. This allows them to set their own prices – not only spread, but the currency prices that you see on their site.

Market makers have some disadvantages. The main one is that in some cases, especially if you are using scalping strategies, they may not be happy if you are successful. This is because if they did not fully cover your position, they can lose out on your successful trades.

The main advantage, on the other hand, is that they usually have the lowest minimum investment levels. This means that most beginners start out with a market maker rather than a traditional foreign exchange broker.

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So how should a trader act to put themselves on the right side of the equation? Here are our top tips for success in foreign exchange trading.

1. Be realistic

Anybody who gets into forex trading hoping to get rich quick is going to be disappointed. If you go out for maximum leverage on the smallest possible account, you are heading for big losses sooner or later.

Forex traders do not get rich quick: they either make money slowly or they lose. We know which option we would pick!

2. Have faith in your system

It is essential to have confidence in your foreign exchange trading system, enough to see it through any bad patches. However, good systems take some finding and testing.

Even if a system works for somebody else, you cannot expect to have faith in it until you have thoroughly tested it for yourself. So do not skip this step.

Once you are sure of the long term success of your system, stick with it and do not abandon it just because the market does not act the way you expect all of the time.

Sometimes of course there are major shifts in the market and prices may behave differently for a while.

If you think that is happening, switch to demo for a while. Don’t start on a new system, it would be the worst possible time.

3. If in doubt, stay out

This is one of the catchphrases of the forex market – and probably other financial markets too.

It is easy to become impatient when waiting for the trading signals to be just right, especially if we have not seen a trading opportunity in a while.

However, this is not a reason for opening a trade too soon.

Forex trading is exciting at times and boring at others – the only way to profit is to wait it out.

4. But do not wait too long

Hesitating when the signals are right is almost as bad as jumping in too early. You will be losing some of your profit on each trade if you constantly hover wondering whether or not to act.

Your plan should be clear in terms of which charts and indicators you use to check your signal. Having done that, do not start consulting a lot of technical tools. It is time to act.

5. No regrets

Some trades lose and some trades win. Some make profits but not as much as they could have made if only … (you had closed sooner/closed later/got in earlier etc).

Unless you are in the testing process where different variables could make a difference to your final trading system, this kind of ‘what if’ thinking is a waste of time.

No, it’s worse than that. It is positively dangerous because it will distract you from the next opportunity and possibly lead you to start tweaking your system for no reason.

When a trade is closed, it is closed. There is nothing to do but record the results on your spreadsheet and move on to the next foreign exchange trade.

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