Forex trading is risky, and so if you are a complete beginner, the first piece of advice I would give you is to not trade with real money. Almost every Forex broker today has a demo account.

Practising your trades on a demo account will help you understand how the process works, and what kind of money you can potentially lose. 

Knowing the risks is very critical before you put in your first real dollar in the market.

Why Is Forex Trading Risky?

Forex trading is often an umbrella term that refers to what is really called ‘CFD trading’. 

CFD stands for ‘Contracts For Difference’. With CFDs, you are not actually trading anything of real value. 

For example, let’s say you want to trade the CFD for the Euro-USD currency pair. When you buy “1 lot” of EURUSD, you are not actually buying Euros or USD. 

Instead you are buying something that’s intangible. When the price of EURUSD goes up, you make a profit on this ‘thing’. And when it goes down, you make a loss. 

You can trade such CFDs for almost everything – Forex currency pairs, stocks, indices, metals..you name it.

So why do we have CFDs if we can trade the real thing? Like, why can’t you buy actual Euros instead of EURUSD? 

The answer to this lies in something called Leverage. 

You see, 1 lot of EURUSD is worth around $102,500 as of today. 

What CFD brokers do is allow you to buy this 1 lot of EURUSD for as little as $200 (or even lower). 

When you pick a CFD trader that offers 1:500 leverage, then for every $200 you put in, another third-party will put in 500x the amount. 

This way, you can buy 1 lot of EURUSD worth $102,500 for just $200. 

This works out great when you make a profit. 

Let’s say the price of EURUSD goes up by 1% – that is an increase of $10,250. 

In effect, even though you only invested $200 in the trade, you can still make a profit of $10,250 (minus the interest you have to pay the third-party who loaned you this amount in the first place). 

But more often than not, beginner-level Forex traders lose instead of winning trades. Which means, you can stand to lose $10,250 even though you only had invested $200 in the trade. 

How is this even possible? Well, that will take some explaining which is outside the scope of this article. You can find the complete explanation in this ebook.

But I hope you understand why Forex trading is risky. You can lose really large sums of money even if you only place really conservative bets.

How to start trading Forex as a beginner

If you are a beginner who has absolutely no idea how this works, it is important that you start trading with demo accounts. Not just that, it is also important that you pick a broker that offers low leverage CFD trading. Anything under 1:50 leverage is ideal. 

This way, even when you lose trades, you are not losing really large sums of money. 

Demo accounts are great – you get all the benefits of a real account but without putting any real money. This means your profits are also imaginary. But it helps you keep grounded on what’s actually possible here.

But please beware – Forex trading has a lot of beginner’s luck. This can give you a false sense of security that you are some kind of special intuition to guess where prices are going. But keep trading long enough and you will find yourself lose all the money you made and more, from just one or two badly executed trades. 

Check out Forex communities online – and you will find thousands of experiences along these lines. Do realize that your experience is going to be no different.

When to start Forex trading with real money

In Forex trading, all the gains you have made over several weeks through hundreds of trades can be wiped out with just one or two poor trades. 

Let not one month of gains push you into a false sense of security. 

You have to always plan for contingencies. 

This is called risk management, and experienced Forex traders work with something called ‘Risk and Reward’. 

What this means is that you plan in advance for at what point you cut your losses, and at what point you book profits. 

Let’s say you come across a trading strategy that is right 70% of the time. 

This means that when you open a position, you can set the trade in such a way that you book profits when you are $10 in profit, and cut losses if you hit $10 in loss. This is called a 1:1 risk-reward. 

If you choose to book $20 in profit while cutting losses at $10, then it is called a 1:2 risk reward. 

Usually, the higher the reward, the lower is your chance of winning this trade. 

It is a good idea to start with a 1:1 risk reward and base your trades of one specific trading setup (or strategy).

Run this through hundreds of times with a demo account and see if you are turning a profit in the end. If you do, then you are doing a good job and you can potentially start experimenting with a real account. 

This can take several months to master, and do not jump into a real account till you have tested your strategy for so long. 

Cheat code – copy trading from the professionals

At the end of the day, what are you in Forex trading for? Do you want to experience the thrill, or is it just to make your wealth grow? 

If you are like any professional with good steady income, your objective will be to use Forex trading as an alternative investment platform. Perhaps you have already maxed out your mutual funds, real estate, and savings accounts. Forex can be a good investment opportunity to earn passive income

When done right, forex trading can deliver a significantly higher rate of return compared to these other options. 

At Rafrador, we enjoy modest returns on Forex trading because of our “safety-first trading approach”. Even then, we consistently see returns of around 5% per month on our trades.

While you may not have the time to learn trade, you could set up an automated system that copies trade from professional traders. 

This way, when they make money, you make money too. And when they lose money – you lose too. 

But since professional traders have good risk management strategies and trade for a living, you can expect to make good returns by the end of each month. 

There are two ways professional traders charge for copy trading – either as a percentage of the profits earned, or as a fixed sum commission each month. 

Would you like to learn more about how to go about this? Send us an email at [email protected] and we will take you through the steps. Don’t forget to ask for our past results.