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How to Invest in Forex – All the necessary steps

Your capital may be at risk. This material is not investment advice.

You want to invest in Forex and you don’t know where to start. Sure you have many questions:

  • Investing in Forex is profitable?
  • How much money do I need to start Forex trading?
  • How to choose a broker to invest Forex?
  • What steps should I take to start trading Forex?
  • Is there free money to trade forex?

Once you have answered all the questions that we ask you in this article, you will be ready to start trading CFDs on Forex or any other instrument.

Choice of the broker to invest

When you start to invest in Forex you have to create a safe trading environment. Choosing a broker is the first step to protect your investment!

Financial trading is a regulated activity in almost every country in the world, especially in the most important financial centers such as the United Kingdom, the United States, the European Union, Japan, Australia and Canada, among others.

Before taking this step make sure your broker is licensed. Trading with an unlicensed broker will only offer you the protection contained in the terms of the contract. This is not the most ideal scenario.

When choosing your broker, be sure to protect yourself legally❗

There are 3 main points that you should consider when looking for safe conditions to trade or invest:

✔️ Segregation of client funds: ensure that your money is not used by your broker for anything, except your trading, and that it is therefore always available for withdrawal if you request it;

✔️ Financial Services Compensation Scheme: Defines the amount of funds that will be compensated in the extreme case that the broker or bank is bankrupt.

✔️ Efficient processes for handling customer comments and complaints: ensure that if your queries are not resolved in a few hours, they are immediately sent to the compliance or customer service department.

Whatever happens, make sure your investment is protected. There are other important aspects when choosing your broker such as:

  • The trading platform with which the broker operates
  • The spreads offered to the trader
  • The quality of execution
  • The types of accounts they offer
  • Instruments and styles of trading offered to the trader
  • Customer Service
  • Trader training, such as personalized analysis or free online webinars
  • Trading accounts differ in other things besides the minimum deposit!

In fact, the minimum deposit issue is the last thing to consider when opening a long-term trading account, despite being one of the points that receives the most publicity. Instead, pay attention to instruments, the execution model, leverage, and tight spreads. The way the quotes are published is also important and depends on the broker.

You have to be careful with Dealing Desk accounts, or Market Maker brokers (market makers), unless you are specifically interested in the conditions offered by them. Its features often include momentous execution, instant execution, and lower minimum deposits. This means that you are trading with the broker instead of through him.

A trading account with a broker is very similar to an account in a bank. The main difference is that the funds in your Trading account can only be used for trading in the financial markets.

There is a great variety between trading accounts depending on the broker with which you decide to invest in Forex.

The type of account you should choose to trade Forex will depend on your Trading strategy. The accounts vary among others depending on:

  • your minimum deposit requirements
  • leverage
  • financial instruments to be traded

Risk management for investing in currencies

How much money do you plan to earn in a given period of time? Think of a number, either for a month or for a year.

When starting to invest in Forex, then ambition is generally a good thing, but when it comes to trading, unrealistic expectations can create tension, affect your perception of the market and ultimately cause poor trading performance.

The more you want to earn, the more you will have to invest to keep your risk at the same level.

The level of risk is something that is determined by each trader on their account and it works as follows. Suppose you determined that your maximum risk level is 1%.

  • If your account has 100 euros, the maximum you can risk on each order is 1 euro.
  • This in the Forex market means that you can open positions with a micro lot or a 0.01 lot. This would make the pip value around 0.10 euros.
  • To meet the maximum level of 1%, you cannot allow the price to go against you more than 10 pips.
  • The problem with investing in the forex market with low capital is that it reduces the flexibility to choose a trading style. In this case you would be obliged to operate in intraday time frames.

When we talk about risk, it is important not to forget:

➨ Leverage . This option allows the trader to operate with more capital than he has available. A leverage of 1: 100 means that the trader can open a position worth 100 euros with as little as 1 euro. This can multiply your profits and also your losses, as we have already discussed.

➨ Another important aspect that impacts risk is overtrading. This consists of opening many trades or high value operations that can reduce the free margin of the trader or increase the value of the pip .

These two operations make the account more susceptible to the margin call.

As a note, professional traders have annual returns of 10-15%. Aspiring to higher or faster returns it is possible that you will only be able to empty the trader’s account.

Trading is about getting rich constantly, rather than quickly. Lack of training, unrealistic expectations and scarce funds are the primary sources of risk in Forex trading.

Time horizon for your investment

In the initial stages, your goal will be to conserve your capital, not multiply it. When you start investing in Forex, reducing risk is the primary goal.

What beginning Forex traders generally don’t realize is that the most successful traders follow a strategy based on long-term trends. They keep your orders open for weeks, months and even years. In this way, the Forex market works more like an investment and less like a lottery.

➤ Long-term trading requires patience and modesty in trading volume. And as a reward, it requires fewer hours spent looking at the screen and therefore less stress.

Mathematics is obviously useful in trading too. And luckily, there are some easy ways to calculate what balance, leverage and trading volume is needed per instrument, to manage your risks .

Forex trading strategy

What is the best system to invest in Forex? The simplest!

Don’t overload your charts with indicators or your strategy with weird tricks. The more complicated your trading strategy is, the less opportunity you have to follow it and make it work.

To find out the effectiveness of a strategy in different markets, it is necessary to carry out the necessary backtesting and research. Keeping a strategy simple can be challenging due to the multitude of support tools you can apply to your charts.

Remember, it is not about the number of tools at your disposal, rather it is about being able to use them correctly.

Click here to see 10 tips before investing in Forex that will allow you to develop a correct and simple trading strategy.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future. In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.
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