Forex For Newbies - An Alternative Introduction to Forex

There's probably a book called "Forex for Newbies" by now. Yet only 5 per cent of people, at most, make regular profits from Forex. The rest lose all their money, usually within about 3 months.

There are growing numbers of people who make a great deal of money from trading the financial markets, but, as I mention later in this article, they don't very often touch forex.

Here is a quick rundown of how the forex market works in practice. Our new trader has read a lot of exciting web pages telling him that it's easy to earn money with forex, provided that he uses their particular method, or takes the advice of their particular brokerage. If he doesn't, so he's told, he'll join the 95 per cent of people who fail.

He's bought a typical course or ebook on forex for around $97 and that has taught him several "secrets" and a method of making surefire profits with ease. He's excited and eager to start, so he signs up with a forex broker and opens his account with, let's say, $5,000. Hopefully it's spare money that he has, so if he loses it he can still carry on with his life in much the same way as before.

He follows advice to first open a "demo" account, where he can trade on real price data but without risking real money, until he feels he is ready to trade for real.

For a couple of weeks, he spends several hours a day watching the price fluctuations of several currency pairs on his charts, and checking the indicators. If he profited in his demo account he figures he may as well make real money rather then only make-believe money, and if he has made losses he figures that once he starts trading for real then things will be different.

His broker, of course, knows this is probably how he will think, because he's been in this game for years. Demo accounts, to him, are the bait with which to catch his victims.

Our new trader now, using real money, trades with a great deal more care than he did with the demo account. He checks the indicators very carefully, keeps a written record of all his trades, aims for only a modest 10 or 15 points profit at a time, and after a couple of weeks has lost a few hundred dollars.

But he feels he is getting the hang of it, because so many of his decisions as to whether the price with go up or go down have been right. It's just that the price has been so volatile that, even though it has gone in the direction he forecast, it has in the meantime gone so far in the opposite direction that it has stopped him out.

So he increases his stop level. He was using 20 point stops, and now he increases this to 40 point stops. This seems to work for a while, and he has three or four winning trades. Then he is stopped out a couple of times and he is worse off than before he increased his stop level.

He goes back to his course, re-reads the important parts, and tries again. He studies his currency trading charts and sees a bottom approaching in the currency pair he has been following. The market just has to go up soon. The temptation to increase his bet value from $1 to $3 is overwhelming. If this comes off he can recover all his losses in one shot. As soon as the price has started to increase, he buys.

We know what happens next. He becomes another of the 95 per cent who fail. He can't even get a refund of his course fee on account of his departure from the advice given not to risk too much on any one trade.

You see, the forex market is rather like a ponzi scheme. It doesn't create wealth, but simply moves it from one group of traders to another. The ability of the very few private traders who make large amounts of money is dependent on there being a regular influx of new traders who have only a sketchy idea of what they are doing and who can therefore be relied on to lose all their money within a short time.

If making large profits every day in forex was as easy as it's so often made out to be then far more people would be doing it. But there are people who make consistent, and in many cases large, profits from the financial markets. The forex market, though, is one they mostly stay away from.

Markets such as stocks, bonds, indices and commodities may not have the glitz and glamor of forex, but are in fact far easier to trade for profit. And there are one or two traders in these markets who are willing to teach you to do the same. You just have to find them.