Global forex trading gives us a huge opportunity to make money from currency trading. Of course it is risky, and it is important to know what you are going before you trade live. Fortunately, demo trading allows us to practice our skills before risking any money.

But even with a demo account, it is important to take your trading seriously from the start. Here are 3 pointers that will help you make money with any forex trading system.

1. The One Trade Rule

It is best to open trades one by one. Even for an experienced trader, it is important not to have too many trades at risk at the same time.

This does not necessarily mean that you only ever have one trade open. If you have a trade that is in profit and you have moved a trailing stop beyond the entry point so that this trade cannot lose, it is possible to open another. But it is important to have moved that stop.

Always keep in mind that some unpredictable event such as a natural disaster, war or sudden death of a political leader could throw the whole market into confusion. Or what if your phone lines go down and your internet connection is lost?

2. Risk: Not Too High …

Risk management is vital for successful currency trading. You can succeed without being the perfect technical analyst but you cannot make money with global forex trading without understanding risk management.

If you are risking too much on each trade then at some time or another your funds will be wiped out. All systems have their ups and downs and if your risk is too high, your account balance will not be able to recover from the downs.

3. … And Not Too Low

On the other hand, if your leverage is too low, you will not make much money even from a profitable system. And if your stop loss is too close to your entry point, it will be triggered too soon.

So risk must be optimized for your system. It depends on drawdown and average profit or loss per trade, but a good rule of thumb is to risk between 1% and 5% of your funds on each trade. Only take the higher figure if losing your entire balance would not be a disaster. Generally, the more money a trader has in their account, the more careful they are with it.

Some traders consider that having a set risk per trade is too inflexible and the risk should depend on the strength of a signal. That is fine as long as the variable risk is still defined according to the system. What you want to avoid is varying the risk depending on intuition, or depending on the result that you had from the last trade. That is a recipe for disaster in global forex trading.

What is forex? This is a good question. There are so many websites and TV ads that mention forex these days. You probably know that it is a way that you can make money, but what exactly does it involve?

The word forex is short for FOReign EXchange. You may see it shortened even further to FX or 4X. It involves exchanging different currencies in the hope of making a profit when the exchange rates change.

A simple example can help to illustrate this. Imagine you were planning to travel overseas. Let’s say you are an American and you are planning a trip to Europe. The currency of most countries in Europe is the euro, so you would want to exchange dollars from your bank for euros so that you would have some cash to spend while you are there. You might buy $500 worth of euros a couple of weeks before your trip.

But then, something comes up at the last moment and you cannot go to Europe after all. So you change the money back into dollars and put it back in your bank. Now, in the two weeks that you had those euros, the value of the euro against the dollar will have changed at least a little. Usually it doesn’t change a whole lot and because of the bank’s commission, you would find you get back less than your original $500. But if the value of the dollar really fell during that time, or the euro rose by a lot, you could end up getting back more than $500. Then you would have made a profit from currency exchange.

So when we look at what is forex as a way to make money, that is a simple illustration. However, people who start forex trading do not do it by buying foreign currency bills from their bank. They go on the internet and, through a broker, get involved in speculative trading where you can deal in sums 100 or more times larger than the amount that you have in your broker account. It’s a little like taking options in shares. You don’t ever have the currency delivered, you just buy or sell according to whether you think the price will rise or fall, and then trade back out when you have either a significant profit or a loss.

Clearly, this is a risky business, but because you can deal in lots that are 100, 200 or even 400 times your own balance, it has the potential to make you a lot of money. This is what attracts most people to forex trading, and why knowing what is forex can be useful in the modern world.